Financial instability in macroeconomics: a set of new structural models

The Great Financial Crisis has led to widespread criticism of the types of model that have dominated macroeconomic thinking over the last few decades, in particular, the fact that they neglect the financial sector. The Macroprudential Research Network (MaRs) of the European System of Central Banks has made a major effort to address this shortcoming, inter alia, by incorporating into macroeconomic models key financial instability features that were so sorely lacking before and during the crisis. The lead article of this Research Bulletin presents four structural MaRs models, which contribute to this effort by focusing on drastic non-linear adjustments, the endogenous build-up and unravelling of credit imbalances, bank defaults, and the benefits and costs of various macroprudential regulatory instruments and their interactions. JEL Classification: E1