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α: calibrated so average coauthorship-adjusted count equals average raw count
We analyze the macroeconomic effects of macroprudential policy – in the form of legal reserve requirements – in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identify innovations in changes in legal reserve requirements, we develop a narrative approach that classifies each change into endogenous or exogenous to the business cycle. We show that this distinction is critical in understanding the macroeconomic effects of reserve requirements. In particular, we show that output falls in response to exogenous increases in legal reserve requirements but is not affected when using all changes and relying on traditional time-identifying strategies. This bias reflects the practical relevance of the misidentification of endogenous countercyclical changes in reserve requirements.