The Aino 3.0 model

Aino Silvo and Fabio Verona

No 9/2020, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: In this paper we present Aino 3.0, the latest vintage of the dynamic stochastic general equilibrium (DSGE) model used at the Bank of Finland for policy analysis. Aino 3.0 is a small-open economy DSGE model at the intersection of the recent literatures on so-called TANK ('Two-Agent New Keynesian') and MONK ('Mortgages in New Keynesian') models. It aims at capturing the most relevant macro-financial linkages in the Finnish economy and provides a rich laboratory for the analysis of various macroeconomic and macroprudential policies. We show how the availability of a durable consumption good (housing), on the one hand, and the presence of credit-constrained households, on the other hand, affect the transmission of key macroeconomic and financial shocks. We also illustrate how these new transmission channels affect model dynamics compared to the previous model vintage (the Aino 2.0 model of Kilponen et al., 2016).

Keywords: business cycles; small open economy; credit constraints; housing market; long-term debt (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 F41 R31 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2020_009

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