Practical Macrofinancial Stability Analysis: A Prototype Semistructural Model

Jaromir Benes, Tomas Motl and David Vavra

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We introduce the mess, the MacroEconomic Stress Scenario builder, as a macroprudential modeling framework for practical application at policymaking institutions. The framework synthesizes the key insights from academic literature on financial cycles, interactions between the real economy and the financial system, and macroprudential policy. It features an explicit description of gross quantities on the financial sector’s balance sheet and explicit concepts of demand and supply on the credit market. The key equations linking the real economy and the financial sector are nonlinear, making it possible to realistically examine the costs and benefits of macroprudential policy. The intended use of the model is for policymaking institutions that need a tool which is theoretically consistent, but also malleable and flexible enough to be able to fit particular features of the economy and financial sector. The framework is already in use by financial stability authorities in several countries. This paper presents the model itself, the principles on which it is built, and use cases in policymaking institutions.

Date: 2023-03
New Economics Papers: this item is included in nep-ban and nep-cba
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Journal Article: Practical Macrofinancial Stability Analysis: A Prototype Semistructural Model (2024)
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