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Evaluation of macroeconomic models for financial stability analysis

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  • Dimitrios P Tsomocos
  • Gunnar Bardsen

Abstract

As financial stability has gained focus in economic policymaking, the demand for analyses of financial stability and the consequences of economic policy has increased. Alternative macroeconomic models are available for policy analyses, and this paper evaluates the usefulness of some models from the perspective of financial stability. Financial stability analyses are complicated by the lack of a clear and consensus definition of `financial stability`, and the paper concludes that operational definitions of this term must be expected to vary across alternative models. Furthermore, since assessment of financial stability in general is based on a wide range of risk factors, one can not expect one single model to satisfactorily capture all the risk factors. Rather, a suite of models is needed. This is in particular true for the evaluation of risk factors originating and developing inside and outside the financial system respectively

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2006-FE-01.

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Date of creation: 01 Feb 2006
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Handle: RePEc:oxf:wpaper:2006-fe-01

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Keywords: Financial stability; Banks; Default; Macroeconomic models; Policy;

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Cited by:
  1. Jonas Dovern & Carsten-Patrick Meier & Johannes Vilsmeier, 2008. "How Resilient is the German Banking System to Macroeconomic Shocks?," Kiel Working Papers 1419, Kiel Institute for the World Economy.
  2. Yonggang Ye & Jiaqi Yang & Lingfeng Song & Pei ZHang, 2013. "Macroeconomics Framework Considered Risk Factors: Based on Default Distance," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 124-133, December.
  3. Hernando Vargas Herrera & Dpto de Estabilidad Financiera, . "El Riesgo de Mercado de la Deuda Pública: ¿Una Restricción a la Política Monetaria? El Caso Colombiano," Borradores de Economia 382, Banco de la Republica de Colombia.
  4. Bluhm, Marcel & Krahnen, Jan Pieter, 2011. "Default risk in an interconnected banking system with endogeneous asset markets," CFS Working Paper Series 2011/19, Center for Financial Studies (CFS).
  5. Rasmus Kattai, 2010. "Credit risk model for the Estonian banking sector," Bank of Estonia Working Papers, Bank of Estonia wp2010-01, Bank of Estonia, revised 04 Feb 2010.
  6. Dale F. Gray & James P Walsh, 2008. "Factor Model for Stress-Testing with a Contingent Claims Model of the Chilean Banking System," IMF Working Papers 08/89, International Monetary Fund.
  7. David Pérez-Reyna, . "Una aproximación para analizar la estabilidad financiera por medio de un DSGE," Temas de Estabilidad Financiera, Banco de la Republica de Colombia 040, Banco de la Republica de Colombia.
  8. Dale F. Gray; & Robert C. Merton & Zvi Bodie, 2009. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," Working Papers Central Bank of Chile, Central Bank of Chile 541, Central Bank of Chile.
  9. Q. Farooq Akram & Gunnar Bårdsen & Kjersti-Gro Lindquist, 2006. "Pursuing financial stability under an inflation-targeting regime," Working Paper, Norges Bank 2006/08, Norges Bank.
  10. Agustín Saade & Daniel Osorio & Dairo Estrada, 2007. "An equilibrium approach to financial stability analysis: the Colombian case," Annals of Finance, Springer, Springer, vol. 3(1), pages 75-105, January.
  11. Fioramanti, Marco & Vicarelli, Claudio, 2011. "The New Stability and Growth Pact: Primum non nocere," CEPS Papers, Centre for European Policy Studies 4370, Centre for European Policy Studies.
  12. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers, Netherlands Central Bank, Research Department 119, Netherlands Central Bank, Research Department.
  13. Eric Tymoigne, 2010. "Detecting Ponzi Finance: An Evolutionary Approach to the Measure of Financial Fragility," Economics Working Paper Archive wp_605, Levy Economics Institute.
  14. Stan du Plessis & Gideon du Rand, 2011. "On the (non-)equivalence of capital adequacy and monetary policy: A response to Cechetti and Kohler," Working Papers 04/2011, Stellenbosch University, Department of Economics.
  15. Roger Hammersland & Cathrine Bolstad Træe, 2011. "The Financial Accelerator and the real economy. Self-reinforcing feedback loops in a core macro econometric model for Norway," Discussion Papers, Research Department of Statistics Norway 668, Research Department of Statistics Norway.
  16. Hernando Vargas H. & Dpto de Estabilidad Financiera, 2006. "El Riesgo De Mercado De La Deuda Pública:¿Una Restricción A La Política Monetaria?El Caso Colombiano," BORRADORES DE ECONOMIA 002543, BANCO DE LA REPÚBLICA.

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