Leaning Against the Wind: An Empirical Cost-Benefit Analysis

55 Pages Posted: 11 Feb 2021

See all articles by Luis Brandao-Marques

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department

Gaston Gelos

International Monetary Fund

Machiko Narita

International Monetary Fund (IMF)

Erlend Nier

International Monetary Fund (IMF)

Date Written: January 2021

Abstract

This paper takes a new approach to assess the benefits of using different policy tools-macroprudential and monetary policies, foreign exchange interventions, and capital controls-in response to changes in financial conditions. Starting from quantile regressions, we evaluate policies across the full distribution of future output growth and inflation using loss functions. Tightening macroprudential policy dampens downside risks to growth from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses. These findings also hold when reacting to easing global financial conditions, while buying foreign exchange or tightening capital controls yields only small net benefits.

JEL Classification: E01, E52, E58, F31, G21, G28, O24

Suggested Citation

Brandao-Marques, Luis and Gelos, R. Gaston and Narita, Machiko and Nier, Erlend, Leaning Against the Wind: An Empirical Cost-Benefit Analysis (January 2021). CEPR Discussion Paper No. DP15693, Available at SSRN: https://ssrn.com/abstract=3783908

Luis Brandao-Marques (Contact Author)

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)

R. Gaston Gelos

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Machiko Narita

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Erlend Nier

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
42
PlumX Metrics