Mr. Tobias Adrian, Mr. Dong He, Nellie Liang, and Mr. Fabio M Natalucci
This paper describes the conceptual framework that guides assessments of financial stability risks for multilateral surveillance, as currently presented in the Global Financial Stability Report (GFSR). The framework emphasizes consistency in measuring financial vulnerabilities across countries and over time and offers a summary statistic to quantify aggregate financial stability risks. The two parts of the empirical approach—a matrix of specific vulnerabilities and a summary measure of financial stability risks—are distinct but highly complementary for monitoring and policymaking.
Mr. Tobias Adrian, Federico Grinberg, Nellie Liang, and Sheheryar Malik
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.