Macro-Financial Linkages in a Structural Model of the Irish Economy

Niall McInerney
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Niall McInerney: Central Bank of Ireland

No 03/RT/20, Research Technical Papers from Central Bank of Ireland

Abstract: We specify and estimate a system of macro-financial linkages that incorporate transmission channels for both borrower- and lender-based macroprudential instruments. We then embed these linkages in a structural macro model of the Irish economy. To illustrate the usefulness of the model for policy analysis, we simulate several scenarios. We first show that regulatory changes to LTI and LTV ratios have a relatively large impact on the real economy, primarily through consumption. We next examine the stabilising properties of the countercyclical capital buffer. We find that releasing this buffer in response to an adverse real and financial shock can partially attenuate of the ensuing contraction in credit and output. Finally, we consider the impact of an exogenous fall in commercial real estate prices and demonstrate that this sector can generate significant macro-financial volatility.

Keywords: Banking; macroprudential; house prices; structural modelling (search for similar items in EconPapers)
JEL-codes: E5 E52 E53 G21 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:03/rt/20

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