The Global Financial Cycle and Macroeconomic Tail Risks

46 Pages Posted: 16 Jul 2020 Last revised: 5 Dec 2023

See all articles by Johannes Beutel

Johannes Beutel

Deutsche Bundesbank

Lorenz Emter

Central Bank of Ireland

Norbert Metiu

Deutsche Bundesbank

Esteban Prieto

Deutsche Bundesbank - Economic Research Centre

Yves S. Schüler

Deutsche Bundesbank

Date Written: June 10, 2020

Abstract

We study the link between the global financial cycle and macroeconomic tail risks using quantile vector autoregressions. Contractionary shocks to financial conditions and monetary policy in the United States cause elevated downside risks to growth around the world. By tightening financial conditions globally, these shocks affect the left tail of the conditional output growth distribution more strongly than the center of the distribution. This effect is particularly pronounced for countries with less flexible exchange rate arrangements, higher foreign currency exposures, and higher levels of private sector leverage, suggesting that exchange rate policies and macroprudential policies can mitigate downside risks to growth.

Keywords: Financial Shocks; Monetary policy; Global financial cycle; Growth-at-Risk; International spillovers; Quantile VAR

JEL Classification: C32, E23, E32, E44, F44

Suggested Citation

Beutel, Johannes and Emter, Lorenz and Metiu, Norbert and Prieto, Esteban and Schüler, Yves S., The Global Financial Cycle and Macroeconomic Tail Risks (June 10, 2020). Available at SSRN: https://ssrn.com/abstract=3623953 or http://dx.doi.org/10.2139/ssrn.3623953

Johannes Beutel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Lorenz Emter (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Norbert Metiu

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Esteban Prieto

Deutsche Bundesbank - Economic Research Centre ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

Yves S. Schüler

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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