The European Systemic Risk Board (ESRB) published a report setting out improvements to the way it assesses the macroprudential stance. The macroprudential stance assessment is a conceptual framework for comparing systemic risks with the policy measures taken to address them. This helps the ESRB to see whether the financial system is resilient enough, and whether a country’s imacroprudential policy stance is neutral, loose or tight relative to the risks it aims to address.
The framework, which builds on two earlier reports by the ESRB, follows two complementary approaches using country-level data, namely:
- a growth-at-risk approach, in which a model is used to estimate the impact that macroprudential policy has on forecasts regarding the distribution of future economic growth;
- an indicator approach, in which readily available indicators for risks, resilience and policy (for example housing prices and bank capitalization) are compared across countries for both capital-based and borrower-based measures.
The report documents the technical improvements that the ESRB has made in this area. These include conducting robustness checks (for example to assess whether results are stable when the period of the COVID-19 pandemic is included), correcting for biases in the model estimation and making the two approaches less complex.