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Modeling with Macro-Financial Linkages


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  • Jaromir Benes
  • Inci Ötker
  • David Vávra


This paper develops a stylized, small, open economy macro model that incorporates an explicit and non-trivial role for financial intermediation. It illustrates how such a model could be used for policy analysis in an emerging market economy where policymakers are concerned about risks associated with rapid credit growth, financial dollarization, and foreign borrowing, while lacking traditional tools to effect monetary policy transmission, and hence could resort to more direct instruments, such as foreign exchange market intervention and regulatory and administrative measures. Calibrating the model to a stylized emerging European economy, the paper simulates real and financial sector implications of various external and policy-related shocks that could be used as input for monetary policy making.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/123.

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Length: 34
Date of creation: 01 Jun 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/123

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Postal: International Monetary Fund, Washington, DC USA
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Keywords: Financial intermediation; Dollarization; Credit controls; Banks; Credit expansion; Credit risk; Economic models; Emerging markets; External borrowing; External shocks; Financial sector; bank loans; bank lending; banking; bank credit; banking sector; terms of trade; domestic goods; domestic prices; domestic banks; elasticity of substitution; domestic firms; monetary authority; world price; foreign exchange; bank lending rate; bank lending rates; perfect substitutes; net exports; balance of payments; bank balance sheets; aggregate demand; interbank market; working capital; external funding; reserve requirement; reserve ratio; competitive markets; bank deposits; foreign exchange market; open economy; world economy; bank borrowing; domestic shocks; current account balance; import price; equilibrium model; open economies; nontradable goods; credit control; domestic producers; export prices; banking sectors; domestic banking system; world prices; banking activities; constant elasticity of substitution; domestic aggregate demand; banks loans; domestic price; bank capital; domestic demand; world demand; market equilibrium; price of imports; bank funding; bank activities; exchange rate policies; perfect competition; exchange rate regime; nominal price; banking systems; external finance; foreign ownership; global market; banks ? balance sheets; banking sector problems; domestic production; bank products; banking system; nominal interest rate; bank borrowers; national bank; competitive advantage;

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Cited by:
  1. Jan Vlcek & Scott Roger, 2012. "Macrofinancial Modeling At Central Banks," IMF Working Papers 12/21, International Monetary Fund.


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