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The Transmission of Macroprudential Policy in the Tails: Evidence from a Narrative Approach

Author

Listed:
  • Álvaro Fernández-Gallardo

    (BANCO DE ESPAÑA)

  • Simon Lloyd

    (BANCO DE ESPAÑA)

  • Ed Manuel

    (BANCO DE ESPAÑA)

Abstract

We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for advanced European economies using a narrative-identification strategy in a quantile-regression framework. While macroprudential policy has near-zero effects on the centre of the GDP-growth distribution, tighter policy brings benefits by reducing the variance of future growth, significantly boosting the left tail while simultaneously reducing the right. Assessing a range of channels through which these effects materialise, we find that macroprudential policy particularly operates through ‘credit-at-risk’: it reduces the right tail of future credit growth, dampening booms, in turn reducing the likelihood of extreme GDP-growth outturns.

Suggested Citation

  • Álvaro Fernández-Gallardo & Simon Lloyd & Ed Manuel, 2025. "The Transmission of Macroprudential Policy in the Tails: Evidence from a Narrative Approach," Working Papers 2519, Banco de España.
    • Handle: RePEc:bde:wpaper:2519
    DOI: https://doi.org/10.53479/39444
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    More about this item

    Keywords

    growth-at-risk; macroprudential policy; narrative identification; quantile local projections.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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