The Global Financial Cycle and Macroeconomic Tail Risks

49 Pages Posted: 14 Jan 2023

See all articles by Johannes Beutel

Johannes Beutel

Deutsche Bundesbank

Lorenz Emter

European Central Bank (ECB); University of Melbourne - Trinity College

Norbert Metiu

Deutsche Bundesbank

Esteban Prieto

Deutsche Bundesbank - Economic Research Centre

Yves S. Schüler

Deutsche Bundesbank

Date Written: 2022

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 (2022). Deutsche Bundesbank Discussion Paper No. 43/2022, Available at SSRN: https://ssrn.com/abstract=4324202 or http://dx.doi.org/10.2139/ssrn.4324202

Johannes Beutel (Contact Author)

Deutsche Bundesbank ( email )

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

Lorenz Emter

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

University of Melbourne - Trinity College

Royal Parade
Parkville, VIC 3052
Australia

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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