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Macro-Financial Linkages in a Structural Model of the Irish Economy

Author

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  • McInerney, Niall

    (Central Bank of Ireland)

Abstract

We specify and estimate a system of macro-financial linkages that incorporate transmission channels for both borrower- and lender-based macroprudential instruments. We then embed these linkages in a structural macro model of the Irish economy. To illustrate the usefulness of the model for policy analysis, we simulate several scenarios. We first show that regulatory changes to LTI and LTV ratios have a relatively large impact on the real economy, primarily through consumption. We next examine the stabilising properties of the countercyclical capital buffer. We find that releasing this buffer in response to an adverse real and financial shock can partially attenuate of the ensuing contraction in credit and output. Finally, we consider the impact of an exogenous fall in commercial real estate prices and demonstrate that this sector can generate significant macro-financial volatility.

Suggested Citation

  • McInerney, Niall, 2020. "Macro-Financial Linkages in a Structural Model of the Irish Economy," Research Technical Papers 03/RT/20, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:03/rt/20
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/03rt20-marco-financial-linkages-in-a-structural-model-of-the-irish-economy-(mcinerney).pdf?sfvrsn=6
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    Citations

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    Cited by:

    1. Arigoni, Filippo & McCann, Fergal & Yao, Fang, 2022. "Mortgage credit and house prices: evidence to inform macroprudential policy," Financial Stability Notes 11/FS/22, Central Bank of Ireland.
    2. Matija Lozej & Graeme Walsh, 2021. "Fiscal Policy Spillovers in a Monetary Union," Open Economies Review, Springer, vol. 32(5), pages 1089-1117, November.

    More about this item

    Keywords

    Banking; macroprudential; house prices; structural modelling;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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