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Assessing macro-financial linkages: a model comparison exercise

Rafael Gerke, Magnus Jonsson, Martin Kliem (), Marcin Kolasa (), Pierre Lafourcade, Alberto Locarno (), Krzysztof Makarski () and Peter McAdam
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Rafael Gerke: Deutsche Bundesbank
Magnus Jonsson: Sveriges Riksbank
Pierre Lafourcade: De Nederlandsche Bank

No 110, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: The recent global financial crisis has increased interest in macroeconomic models that incorporate financial linkages. Here, we compare the simulation properties of five medium-sized general equilibrium models used in eurosystem central banks which incorporate such linkages. The financial frictions typically considered are the financial accelerator mechanism (convex “ spread” costs related to firms’ leverage ratios) and collateral constraints (based on asset values). The harmonized shocks we consider illustrate the workings and mechanisms underlying the financial-macro linkages embodied in the models. We also look at historical shock decompositions of real GDP growth across the models since 2005 in order to shed light on the common driving factors underlying the recent financial crisis. In these exercises, the models share qualitatively similar and interpretable features. This gives us confidence that we have some broad understanding of the mechanisms involved. In addition, we also survey the current and developing trends in the literature on financial frictions.

Keywords: Financial Frictions; Credit Constraints; Financial Accelerator; Model Comparison; Eurosystem Central Bank Models (search for similar items in EconPapers)
JEL-codes: E32 E44 E47 E52 (search for similar items in EconPapers)
Date: 2012
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Journal Article: Assessing macro-financial linkages: A model comparison exercise (2013) Downloads
Working Paper: Assessing macro-financial linkages: A model comparison exercise (2012) Downloads
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