The Aino 3.0 Model
89 Pages Posted: 8 Jun 2020
Date Written: June 8, 2020
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
JEL Classification: E21, E32, E44, F41, R31
Suggested Citation: Suggested Citation