New Methods for Macro-Financial Model Comparison and Policy Analysis

83 Pages Posted: 30 Aug 2016

See all articles by Volker Wieland

Volker Wieland

University of Frankfurt

Elena Afanasyeva

Board of Governors of the Federal Reserve System

Meguy Kuete

Goethe University Frankfurt

Jinhyuk Yoo

Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS); Goethe University Frankfurt; The Bank of Korea

Date Written: August 2016

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 chapter 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: Macro-Finance, macroeconomic models, model comparison, Monetary policy, policy robustness

JEL Classification: C3, C5, E1, E5, G1

Suggested Citation

Wieland, Volker and Afanasyeva, Elena and Kuete, Meguy and Yoo, Jinhyuk, New Methods for Macro-Financial Model Comparison and Policy Analysis (August 2016). CEPR Discussion Paper No. DP11461, Available at SSRN: https://ssrn.com/abstract=2831964

Volker Wieland

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

Elena Afanasyeva (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Meguy Kuete

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Jinhyuk Yoo

Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

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