Assessing Macro-Financial Linkages: A Model Comparison Exercise

National Bank of Poland Working Paper No. 110

44 Pages Posted: 16 Apr 2012

See all articles by Rafael Gerke

Rafael Gerke

affiliation not provided to SSRN

Magnus Jonsson

Sveriges Riksbank

Martin Kliem

Deutsche Bundesbank - Research Centre

Marcin Kolasa

Warsaw School of Economics (SGH)

Pierre M Lafourcade

De Nederlandsche Bank

Alberto Locarno

Bank of Italy

Krzysztof Makarski

National Bank of Poland; Warsaw School of Economics (SGH)

Peter McAdam

European Central Bank (ECB)

Date Written: March 1, 2012

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

JEL Classification: E32, E44, E47, E52

Suggested Citation

Gerke, Rafael and Jonsson, Magnus and Kliem, Martin and Kolasa, Marcin and Lafourcade, Pierre M and Locarno, Alberto and Makarski, Krzysztof and McAdam, Peter, Assessing Macro-Financial Linkages: A Model Comparison Exercise (March 1, 2012). National Bank of Poland Working Paper No. 110, Available at SSRN: https://ssrn.com/abstract=2028807 or http://dx.doi.org/10.2139/ssrn.2028807

Rafael Gerke

affiliation not provided to SSRN ( email )

Magnus Jonsson

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

HOME PAGE: http://www.riksbank.com/research

Martin Kliem

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

Marcin Kolasa (Contact Author)

Warsaw School of Economics (SGH) ( email )

Al. Niepodleglosci 162
Warsaw, 02-554
Poland

Pierre M Lafourcade

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Alberto Locarno

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Krzysztof Makarski

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH)

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Peter McAdam

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Eurotower
D-60311 Frankfurt am Main
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

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