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The role of banking and credit in business cycle fluctuations in Kazakhstan

Nurdaulet Abilov ()

No 8, NAC Analytica Working Paper from NAC Analytica, Nazarbayev University

Abstract: We analyze the role of the banking sector and credit in business cycle fluctuations in Kazakhstan by adopting the dynamic stochastic general equilibrium (DSGE) model with financial frictions and banks. We introduce financial frictions that lead to the amplification of the effects of shocks in the economy. We find that bank capital adjustment costs are essential in the model due to the large capital adjustment cost parameter. This implies that banks' capital adjusts very slowly to exogenous shocks in the economy. We also analyze impulse responses of endogenous variables to exogenous shocks, including a negative bank capital shock, in order to understand the propagation mechanisms of the shocks. The results from the historical decomposition exercise show us that the financial shocks have played an important role in business cycle fluctuations in Kazakhstan since 2015.

Keywords: DSGE; financial frictions; banking sector; Kazakhstan (search for similar items in EconPapers)
JEL-codes: C11 E32 E37 E44 E51 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-12, Revised 2021-01
New Economics Papers: this item is included in nep-ban, nep-cis, nep-cwa, nep-dge, nep-fdg, nep-isf and nep-mac
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