Credit, Capital and Crises: A GDP-at-Risk Approach

46 Pages Posted: 15 Mar 2021

See all articles by David Aikman

David Aikman

Bank of England - Monetary Assessment and Strategy Division

Jonathan Bridges

Bank of England

Sinem Hacioglu Hoke

Bank of England

Cian O'Neill

Bank of England

Akash Raja

London School of Economics & Political Science (LSE) - London School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2021

Abstract

Using quantile regressions applied to a panel dataset of 16 advanced economies, we examine how downside risk to growth over the medium term is affected by a set of macroprudential indicators. We find that credit and property price booms, and wide current account deficits increase downside risks 3 to 5 years ahead. However, such downside risks can be partially mitigated by increasing the capital ratio of the banking system. We show that GDP-at-Risk, defined as the the 5th quantile of the projected GDP growth distribution three years ahead, deteriorated in the US in the run-up to the Global Financial Crisis, driven by rapid growth in credit and house prices alongside a widening current account deficit. Our results suggest such indicators could provide useful information for the stance of macroprudential policy.

JEL Classification: G01, G18, G21

Suggested Citation

Aikman, David and Bridges, Jonathan and Hacioglu Hoke, Sinem and O'Neill, Cian and Raja, Akash, Credit, Capital and Crises: A GDP-at-Risk Approach (March 2021). CEPR Discussion Paper No. DP15864, Available at SSRN: https://ssrn.com/abstract=3805279

David Aikman (Contact Author)

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Jonathan Bridges

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Sinem Hacioglu Hoke

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Cian O'Neill

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Akash Raja

London School of Economics & Political Science (LSE) - London School of Economics

United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
51
PlumX Metrics