The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach
This paper analyzes the macroeconomic effects of macroprudential policy—in the form of legal reserve requirements—in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identify innovations in changes in legal reserve requ...
| Main Authors: | , , |
|---|---|
| Format: | Working Paper |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099542508242283333/IDU04a228ead0c60204e6b0b1e002a61b8860edb http://hdl.handle.net/10986/37923 |
| id |
okr-10986-37923 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-379232022-08-26T05:10:37Z The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach Rojas, Diego Vegh, Carlos Vuletin, Guillermo MACROPRUDENTIAL POLICY RESERVE REQUIREMENTS MONETARY POLICY NARRATIVE APPROACH IDENTIFICATION BUSINESS CYCLE ENDOGENEITY MACROECONOMIC EFFECTS STABILITY SYSTEMIC RISK This paper analyzes the macroeconomic effects of macroprudential policy—in the form of legal reserve requirements—in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identify innovations in changes in legal reserve requirements, a narrative approach—based on contemporaneous reports from the IMF and central banks in the spirit of Romer and Romer (2010)—is developed in which each change is classified into endogenous or exogenous to the business cycle. This distinction is critical in understanding the macroeconomic effects of reserve requirements. In particular, while output falls in response to exogenous increases in legal reserve requirements, it is not affected when using all changes and relying on traditional time-identifying strategies. This bias reflects the practical relevance of the misidentification of endogenous countercyclical changes in reserve requirements. The empirical frontier is also pushed along two important dimensions. First, in measuring legal reserve requirements, both the different types of legal reserve requirements in terms of maturity and currency of denomination as well as the structure of deposits are taken in account. Second, since in practice reserve requirement policy is tightly linked to monetary policy, the study jointly analyze the macroeconomic effects of changes in central bank interest rates. To properly identify exogenous central bank interest rate shocks, the Romer and Romer (2004) strategy is used. 2022-08-25T16:49:17Z 2022-08-25T16:49:17Z 2022-08 Working Paper http://documents.worldbank.org/curated/en/099542508242283333/IDU04a228ead0c60204e6b0b1e002a61b8860edb http://hdl.handle.net/10986/37923 English en Policy Research Working Papers;10145 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Policy Research Working Paper Publications & Research Latin America & Caribbean Argentina Brazil Uruguay |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English English |
| topic |
MACROPRUDENTIAL POLICY RESERVE REQUIREMENTS MONETARY POLICY NARRATIVE APPROACH IDENTIFICATION BUSINESS CYCLE ENDOGENEITY MACROECONOMIC EFFECTS STABILITY SYSTEMIC RISK |
| spellingShingle |
MACROPRUDENTIAL POLICY RESERVE REQUIREMENTS MONETARY POLICY NARRATIVE APPROACH IDENTIFICATION BUSINESS CYCLE ENDOGENEITY MACROECONOMIC EFFECTS STABILITY SYSTEMIC RISK Rojas, Diego Vegh, Carlos Vuletin, Guillermo The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| geographic_facet |
Latin America & Caribbean Argentina Brazil Uruguay |
| relation |
Policy Research Working Papers;10145 |
| description |
This paper analyzes the macroeconomic
effects of macroprudential policy—in the form of legal
reserve requirements—in three Latin American countries
(Argentina, Brazil, and Uruguay). To correctly identify
innovations in changes in legal reserve requirements, a
narrative approach—based on contemporaneous reports from the
IMF and central banks in the spirit of Romer and Romer
(2010)—is developed in which each change is classified into
endogenous or exogenous to the business cycle. This
distinction is critical in understanding the macroeconomic
effects of reserve requirements. In particular, while output
falls in response to exogenous increases in legal reserve
requirements, it is not affected when using all changes and
relying on traditional time-identifying strategies. This
bias reflects the practical relevance of the
misidentification of endogenous countercyclical changes in
reserve requirements. The empirical frontier is also pushed
along two important dimensions. First, in measuring legal
reserve requirements, both the different types of legal
reserve requirements in terms of maturity and currency of
denomination as well as the structure of deposits are taken
in account. Second, since in practice reserve requirement
policy is tightly linked to monetary policy, the study
jointly analyze the macroeconomic effects of changes in
central bank interest rates. To properly identify exogenous
central bank interest rate shocks, the Romer and Romer
(2004) strategy is used. |
| format |
Working Paper |
| author |
Rojas, Diego Vegh, Carlos Vuletin, Guillermo |
| author_facet |
Rojas, Diego Vegh, Carlos Vuletin, Guillermo |
| author_sort |
Rojas, Diego |
| title |
The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| title_short |
The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| title_full |
The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| title_fullStr |
The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| title_full_unstemmed |
The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach |
| title_sort |
macroeconomic effects of macroprudential policy : evidence from a narrative approach |
| publisher |
World Bank, Washington, DC |
| publishDate |
2022 |
| url |
http://documents.worldbank.org/curated/en/099542508242283333/IDU04a228ead0c60204e6b0b1e002a61b8860edb http://hdl.handle.net/10986/37923 |
| _version_ |
1764488136654585856 |