The Risk Management Approach to Macro-Prudential Policy

Macro-prudential authorities need to assess medium-term downside risks the real economy, caused by severe financial shocks. Before activating policy measures, they also consider their short-term negative impact. This gives rise a risk management problem, an inter-temporal trade-off between expected growth and risk. Predictive distributions are estimated with structural quantile vector autoregressive models that relate economic measures of stress cycle. An empirical study euro area U.S. data shows how construct indicators macro-prudential stance when interventions may be beneficial. JEL Classification: G21, C33