Assessing macro-financial linkages: A model comparison exercise |
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Institution: | 1. Bundesbank, Germany;2. Sveriges Riksbank, Sweden;3. Narodowy Bank Polski, Poland;4. De Nederlandsche Bank, The Netherlands;5. Banca d''Italia, Italy;6. European Central Bank, Germany;1. Edward A. Doisy Department of Biochemistry and Molecular Biology, Saint Louis University School of Medicine, St. Louis, MO, USA;2. Department of Biomedical Engineering, School of Medicine, Oregon Health & Science University, Portland, OR, USA |
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Abstract: | The recent global financial crisis has increased interest in macroeconomic models that incorporate financial frictions. We illustrate the simulation properties of five medium-sized general equilibrium models used by central banks in the Eurosystem. The models include a financial accelerator mechanism (convex “spread” costs related to firms' leverage) and/or collateral constraints (based on asset values). We provide results from impulse responses to shocks originating in the financial sector as well as a monetary policy shock. Overall, the models share qualitatively similar and interpretable features. This gives us confidence that we have some common understanding of the mechanisms involved. Finally, we survey recent trends in the literature on financial frictions. |
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