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This paper uses the Growth-at-Risk (GaR) methodology to examine how macrofinancial conditions affect the growth outlook and its probability distribution. Using this approach, we evaluate risks to GDP growth in the Dominican Republic using quarterly data for 1996-2018. We group macrofinancial conditions in five principal determinants, based on 32 indicators. The Dominican Republic’s growth distribution appears most vulnerable to negative shocks to domestic financial conditions, domestic leverage, domestic demand, and external demand, with additional repercussions from the external cost of borrowing in the longer run. Our findings show that domestic monetary policy plays a particularly important role in reducing growth vulnerabilities when the economy is weak.
Finance: General --- Macroeconomics --- Money and Monetary Policy --- Financial Markets and the Macroeconomy --- Economic History: Macroeconomics --- Growth and Fluctuations: Latin America --- Caribbean --- Model Construction and Estimation --- Forecasting and Other Model Applications --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Portfolio Choice --- Investment Decisions --- Monetary Growth Models --- Monetary economics --- Finance --- Credit --- Liquidity --- Macrofinancial linkages --- Growth-at-risk assessment --- Money --- Asset and liability management --- Financial sector policy and analysis --- Economics --- Financial services industry --- Financial risk management --- Dominican Republic
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Using panel quantile regressions for 11 advanced and 10 emerging market economies, we show that the conditional distribution of GDP growth depends on financial conditions, with growth-at-risk (GaR)—defined as growth at the lower 5th percentile—more responsive than the median or upper percentiles. In addition, the term structure of GaR features an intertemporal tradeoff: GaR is higher in the short run; but lower in the medium run when initial financial conditions are loose relative to typical levels, and the tradeoff is amplified by a credit boom. This shift in the growth distribution generally is not incorporated when solving dynamic stochastic general equilibrium models with macrofinancial linkages, which suggests downside risks to GDP growth are systematically underestimated.
Banks and banking --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Finance. --- Finance: General --- Macroeconomics --- Money and Monetary Policy --- International Business Cycles --- Monetary Growth Models --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- General Financial Markets: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Monetary economics --- Growth-at-risk assessment --- Credit booms --- Credit --- Financial sector risk --- Macrofinancial linkages --- Financial sector policy and analysis --- Financial risk management --- Financial services industry --- United States
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The growth-at-risk (GaR) framework links current macrofinancial conditions to the distribution of future growth. Its main strength is its ability to assess the entire distribution of future GDP growth (in contrast to point forecasts), quantify macrofinancial risks in terms of growth, and monitor the evolution of risks to economic activity over time. By using GaR analysis, policymakers can quantify the likelihood of risk scenarios, which would serve as a basis for preemptive action. This paper offers practical guidance on how to conduct GaR analysis and draws lessons from country case studies. It also discusses an Excel-based GaR tool developed to support the IMF’s bilateral surveillance efforts.
Accounting --- Macroeconomics --- Money and Monetary Policy --- Real Estate --- General Aggregative Models: Forecasting and Simulation --- International Business Cycles --- Monetary Growth Models --- Price Level --- Inflation --- Deflation --- Housing Supply and Markets --- Public Administration --- Public Sector Accounting and Audits --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Property & real estate --- Financial reporting, financial statements --- Monetary economics --- Growth-at-risk assessment --- Asset prices --- Housing prices --- Financial statements --- Credit aggregates --- Financial sector policy and analysis --- Prices --- Public financial management (PFM) --- Money --- Financial risk management --- Housing --- Finance, Public --- Credit --- Peru
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Growth takeoffs in developing economies have rebounded in the past two decades. Although recent takeoffs have lasted longer than takeoffs before the 1990s, a key question is whether they could unravel like some did in the past. This paper finds that recent takeoffs are associated with stronger economic conditions, such as lower post-takeoff debt and inflation levels; more competitive real exchange rates; and better structural reforms and institutions. The chances of starting a takeoff in the 2000s was triple that before the 1990s, with domestic conditions accounting for most of the increase. The findings suggest that if today’s dynamic developing economies sustain their improved policies; they are more likely to stay on course compared to many of their predecessors.
Economic development --- Developing countries --- Economic conditions. --- Exports and Imports --- Foreign Exchange --- Macroeconomics --- Public Finance --- Business Fluctuations --- Cycles --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Macroeconomic Analyses of Economic Development --- Monetary Growth Models --- Debt --- Debt Management --- Sovereign Debt --- Aggregate Factor Income Distribution --- Trade: General --- International Lending and Debt Problems --- International economics --- Currency --- Foreign exchange --- Public finance & taxation --- Real exchange rates --- Public debt --- Income inequality --- Export performance --- External debt --- National accounts --- International trade --- Debts, Public --- Income distribution --- Exports --- Debts, External --- United States
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