ESSAYS ON MACRO SCENARIO ANALYSIS AND POLICIES

Abstract

This thesis consists of three chapters. In the first chapter, we devise a generic and efficient bridge sampling method for dynamic macro scenario analyses. We demonstrate that macroeconomic models with comparable forecasting performance can have very different implications under a policy scenario. In the second chapter, we construct a new credit cycle index reflecting credit risk movements and use it to re-evaluate the effectiveness of macroprudential policy. Our empirical studies show that macroprudential tools are effective in containing credit growth, but have not directly dampened credit risk. Moreover, markets tend to force a self-correction through credit contraction at the time of heightened risk. In the third chapter, we identify strong asymmetric effects of monetary policy across credit risk regimes and across directions of shocks. Heightened credit risk reinforces monetary tightening shocks and counteracts loosening shocks. Monetary shocks occurred in low credit risk regime are mostly ineffective.