Implementing Macroprudential Policy in NiGEM

Oriol Carreras, E Davis (), Ian Hurst (), Iana Liadze (), Rebecca Piggott () and James Warren

No 490, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: In this paper we incorporate a macroprudential policy model within a semi-structural global macroeconomic model, NiGEM. The existing NiGEM model is expanded for the UK, Germany and Italy to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital adequacy targets. The former has an effect on the economy via its impact on the housing market while the latter acts on the lending spreads of corporate and households. A systemic risk index that tracks the likelihood of the occurrence of a banking crisis is modelled to establish thresholds at which macroprudential policies should be activated by the authorities. We then show counterfactual scenarios, including a historic dynamic simulation of the subprime crisis and the endogenous response of policy thereto, based on the macroprudential block as well as performing a cost-benefit analysis of macroprudential policies. Conclusions are drawn relating to use of this tool for prediction and policy analysis, as well as some of the limitations and potential further research.

Keywords: macroprudential policy; house prices; credit; systemic risk; macroeconomic modelling (search for similar items in EconPapers)
JEL-codes: E58 G28 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-eec, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:490

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