New methods for macro-financial model comparison and policy analysis

Volker Wieland, Elena Afanasyeva, Meguy Kuete and Jinhyuk Yoo

No 107, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: The global financial crisis and the ensuing criticism of macroeconomics have inspired researchers to explore new modeling approaches. There are many new models that deliver improved estimates of the transmission of macroeconomic policies and aim to better integrate the financial sector in business cycle analysis. Policy making institutions need to compare available models of policy transmission and evaluate the impact and interaction of policy instruments in order to design effective policy strategies. This paper reviews the literature on model comparison and presents a new approach for comparative analysis. Its computational implementation enables individual researchers to conduct systematic model comparisons and policy evaluations easily and at low cost. This approach also contributes to improving reproducibility of computational research in macroeconomic modeling. Several applications serve to illustrate the usefulness of model comparison and the new tools in the area of monetary and fiscal policy. They include an analysis of the impact of parameter shifts on the effects of fiscal policy, a comparison of monetary policy transmission across model generations and a cross-country comparison of the impact of changes in central bank rates in the United States and the euro area. Furthermore, the paper includes a large-scale comparison of the dynamics and policy implications of different macro-financial models. The models considered account for financial accelerator effects in investment financing, credit and house price booms and a role for bank capital. A final exercise illustrates how these models can be used to assess the benefits of leaning against credit growth in monetary policy.

Keywords: model comparison; model uncertainty; monetary policy; fiscal policy; policy robustness; macro-financial models (search for similar items in EconPapers)
JEL-codes: E17 E27 E32 E44 E52 E58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Chapter: New Methods for Macro-Financial Model Comparison and Policy Analysis (2016)
Working Paper: New Methods for Macro-Financial Model Comparison and Policy Analysis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:107

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