EAGLE-FLI. A macroeconomic model of banking and financial interdependence in the euro area

Nikola Bokan (), Andrea Gerali (), Sandra Gomes, Pascal Jacquinot and Massimiliano Pisani
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Nikola Bokan: European Central Bank

No 1064, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We incorporate financial linkages in EAGLE, a New Keynesian multi-country dynamic general equilibrium model of the euro area (EA) by including financial frictions and country-specific banking sectors. In this new version, termed EAGLE-FLI (Euro Area and GLobal Economy with Financial LInkages), banks collect deposits from domestic households and cross-country interbank market and raise capital to finance loans issued to domestic households and firms. In order to borrow from local (regional) banks, households use domestic real estate whereas firmsuse both domestic real estate and physical capital as a collateral. These features – together with the full characterization of trade balance and real exchange rate dynamics and with a rich array of financial shocks – allow to properly assess domestic and cross-country macroeconomic effects of financial shocks. Our results support the views that (1) the business cycles in the EA can be driven not only by real shocks, but also by financial shocks, (2) the financial sector could amplify the transmission of (real) shocks, and (3) the financial/banking shocks and the banking sectors can be sources of business cycle asymmetries and spillovers across countries in a monetary union.

Keywords: Banks; DSGE models; econometric models; financial frictions; open-economy macroeconomics; policy analysis (search for similar items in EconPapers)
JEL-codes: E32 E44 E51 F45 F47 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac, nep-opm and nep-pke
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: EAGLE-FLI: A macroeconomic model of banking and financial interdependence in the euro area (2018)
Working Paper: EAGLE-FLI. A macroeconomic model of banking and financial interdependence in the euro area (2016)
Working Paper: EAGLE-FLI: A macroeconomic model of banking and financial interdependence in the euro area (2016)
Working Paper: EAGLE-FLI - A macroeconomic model of banking and financial interdependence in the euro area (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1064_16

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