A Global Perspective on Macroprudential Policy Interaction With Systemic Risk, Real Economic Activity and Monetary Intervention

The paper empirically assesses how macroprudential policy interacts with systemic risk, industrial production and monetary intervention on the worldwide level during January 2006-December 2016. We adopt the aggregate proxies of these variables, capturing their global effects, and use a novel econometric technique, smooth local projections, by Barnichon and Brownlees (2019). Our major finding is that global macroprudential policy leads the monetary one, exhibiting a countercyclical pattern with respect to industrial production. The latter has an inverse bi-directional linkage with systemic risk. Thus, ex ante tight macroprudential policy can mitigate global systemic risk in a roundabout way – through its pro-growth effect on industrial production, even though there is no convincing evidence for the direct impact of macroprudential intervention on systemic risk. Our results withstand a number of extensions and a robustness check, involving an alternative measure of systemic stress in the world economy, thereby legitimizing the increased importance attached to macroprudential policy since the 2007-2009 global financial crisis