E¤ects and role of macroprudential policy: Evidence from reserve requirements based on a narrative approach
Pablo Federico Blackrock Carlos Vegh
University of Maryland and NBER Guillermo Vuletin
Colby College
Norges Bank
November 30, 2012
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool
Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
Motivation
Macroprudential policy has become a key issue in practice
Relatively little empirical work
Why reserve requirements?
Most common macroprudential tool Time series data available (in principle)
Questions:
What are the macroeconomic (output) e¤ects of RR?
Does RRP complement (i.e., reinforce) or substitute for monetary policy?
How do we proceed?
Focus on four LA countries: Argentina, Brazil, Colombia, and Uruguay
Novel dataset on legal RR rate (for a World Bank project)
Construct a narrative for identifying exogenous changes in RR
Panel VARs with quarterly data
How do we proceed?
Focus on four LA countries: Argentina, Brazil, Colombia, and Uruguay
Novel dataset on legal RR rate (for a World Bank project)
Construct a narrative for identifying exogenous changes in RR
Panel VARs with quarterly data
How do we proceed?
Focus on four LA countries: Argentina, Brazil, Colombia, and Uruguay
Novel dataset on legal RR rate (for a World Bank project)
Construct a narrative for identifying exogenous changes in RR
Panel VARs with quarterly data
How do we proceed?
Focus on four LA countries: Argentina, Brazil, Colombia, and Uruguay
Novel dataset on legal RR rate (for a World Bank project)
Construct a narrative for identifying exogenous changes in RR
Panel VARs with quarterly data
Monetary policy in the United States
Panel A. E¤ect of monetary policy on GDP
-0.3 -0.2 -0.1 0 0.1 0.2
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel B. E¤ect of GDP shock on i Panel C. E¤ect of in‡ation shock on i
-0.2 0 0.2 0.4 0.6 0.8
∆ i
-0.8 -0.4 0 0.4 0.8 1.2
? i
Monetary policy in LAC 4
Panel A. E¤ect of monetary policy on GDP
-0.05 -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel B. E¤ect of GDP shock on i Panel C. E¤ect of in‡ation shock on i
-4 -3 -2 -1 0 1 2 3
0 1 2 3 4 5 6 7 8 9 10
? i
-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5
0 1 2 3 4 5 6 7 8 9 10
? i
RRP in LAC 4: “Traditional” identi…cation
Panel A. E¤ect of RR policy(all RR changes) on GDP
-0.1 -0.05 0 0.05 0.1 0.15
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel B. E¤ect of GDP shock on RR Panel C. E¤ect of in‡ation shock on RR
-0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4
? rr
-0.1 0 0.1 0.2 0.3 0.4 0.5
? rr
Narrative
total exogenous endogenous
Argentina (1992:1-2011:3) 33 20 13
Brazil (1995:1-2010:4) 20 14 6
Colombia (1992:1-2011:3) 6 1 5
Uruguay (1992:1-2011:4) 10 9 1
Total 69 44 25
RRP in LAC 4: Identi…cation based on narrative
Panel A. E¤ect of RR policy(exogenous RR changes) on GDP
-0.3 -0.25 -0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel B. E¤ect of GDP shock on RR Panel C. E¤ect of in‡ation shock on RR
-0.6 -0.4 -0.2 0 0.2 0.4 0.6
? exog rr
-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15
? exog rr
RRP in LAC 4: Endogenous changes
Panel A. E¤ect of RR policy(endogenous RR changes) on GDP
-0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel B. E¤ect of GDP shock on RR
-0.1 -0.05 0 0.05 0.1 0.15 0.2 0.25 0.3
0 1 2 3 4 5 6 7 8 9 10
? endog rr
Monetary policy versus RP in LAC 4
Panel A. E¤ect of RR policy(exogenous)on GDP Panel B. E¤ect of monetary policy on GDP
-0.6 -0.4 -0.2 0 0.2 0.4
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
-0.6 -0.4 -0.2 0 0.2 0.4
0 1 2 3 4 5 6 7 8 9 10
?% real GDP
Panel C. E¤ect of RR policy(exogenous)on i spread Panel D. E¤ect of monetary policy on i spread
-0.5 0 0.5 1 1.5 2 2.5
? interest rate spread -0.5
0 0.5 1 1.5 2 2.5
? interest rate spread
Substitutability between RRP and monetary policy
Panel A. E¤ect of GDP on RR policy(endogenous) Panel B. E¤ect of GDP on monetary policy
-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
0 1 2 3 4 5 6 7 8 9 10
? endog rr
-6 -5 -4 -3 -2 -1 0 1 2 3 4
0 1 2 3 4 5 6 7 8 9 10
? i
Panel C. E¤ect of depreciation on RR policy(endogenous) Panel D. E¤ect of depreciation on monetary policy
-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2
0 1 2 3 4 5 6 7 8 9 10
? endog rr
-6 -4 -2 0 2 4 6
0 1 2 3 4 5 6 7 8 9 10
? i
Conclusions
We developed a narrative to properly identi…ed exogenous/endogenous RR
Critical step in understanding e¤ects and role of RRP
Misidenti…cation critical for output e¤ect
RRP acts as substitute for monetary policy
Conclusions
We developed a narrative to properly identi…ed exogenous/endogenous RR
Critical step in understanding e¤ects and role of RRP
Misidenti…cation critical for output e¤ect
RRP acts as substitute for monetary policy
Conclusions
We developed a narrative to properly identi…ed exogenous/endogenous RR
Critical step in understanding e¤ects and role of RRP
Misidenti…cation critical for output e¤ect
RRP acts as substitute for monetary policy
Conclusions
We developed a narrative to properly identi…ed exogenous/endogenous RR
Critical step in understanding e¤ects and role of RRP
Misidenti…cation critical for output e¤ect
RRP acts as substitute for monetary policy
