A negative figure implies output is below potential and a positive that it is above  In the opposite direction, growth could surprise on the upside, requiring monetary policy to be tightened by a little more, a little sooner than in the May conditioning path. For example, if business investment growth were to recover much more strongly than currently projected – perhaps because of improved in sentiment about progress on Brexit – then demand would grow well in excess of supply, pushing inflation above target throughout the forecast in the absence of tighter policy. 19  These scenarios illustrate how guidance, by revealing the MPC’s reaction function, allows people to anticipate how policy will adapt as the circumstances change. The Other Brexit Path Now consider a different Brexit path where the transition isn’t smooth and/or the final outcome is less open than the MPC’s conditioning assumption. The Bank is doing all it can to reduce the risks of the former. We are taking steps to reduce financial stability risks around Brexit, just as we did around the referendum when we engaged in extensive contingency planning with HM Treasury, foreign central banks, and private financial institutions. In particular, the FPC has identified the Brexit “cliff edge” risks and now publishes a quarterly checklist of progress towards their mitigation. Wherever it can, the Bank is reducing Brexit financial stability risks.
Their effectiveness has also been studied by assessing whether they have helped reduce the likelihood of a systemic crisis [BCBS (2010)], a bankruptcy of a bank or group of banks and debtor default [Galán y Lamas (2019)]. But only on limited occasions has there been a cost-benefit analysis of the application of these measures in terms of their effects on GDP. More recently, researchers have begun to assess the differential effects of activating as opposed to deactivating macroprudential instruments, since their impact may be asymmetrical [Jiménez et al. (2017)]. 14  A methodology has recently been developed which allows an integrated analysis of these aspects to be performed. Specifically, Adrian et al. (2019) has developed the concept of Growth at Risk, the aim of which is to analyse the impact of the instruments on the distribution of expected GDP growth at different horizons. In that way, the impact not only on a baseline scenario (the most likely, characterised by the 50th percentile of the distribution), but also on a tail scenario (derived from a hypothetical systemic crisis, 5th or 10th percentile) can be analysed. At the Banco de España we have used this methodology to analyse the impact on the effectiveness of different macroprudential instruments at the European level [see Galán (2020)].