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The role of banking and credit in business cycle fluctuations in Kazakhstan

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  • Nurdaulet Abilov

    (NAC Analytica, Nazarbayev University)

Abstract

We analyze the role of the banking sector and credit in business cycle fluctuations in Kazakhstan by adopting the dynamic stochastic general equilibrium (DSGE) model with financial frictions and banks. We introduce financial frictions that lead to the amplification of the effects of shocks in the economy. We find that bank capital adjustment costs are essential in the model due to the large capital adjustment cost parameter. This implies that banks' capital adjusts very slowly to exogenous shocks in the economy. We also analyze impulse responses of endogenous variables to exogenous shocks, including a negative bank capital shock, in order to understand the propagation mechanisms of the shocks. The results from the historical decomposition exercise show us that the financial shocks have played an important role in business cycle fluctuations in Kazakhstan since 2015.

Suggested Citation

  • Nurdaulet Abilov, 2020. "The role of banking and credit in business cycle fluctuations in Kazakhstan," NAC Analytica Working Paper 8, NAC Analytica, Nazarbayev University, revised Jan 2021.
  • Handle: RePEc:ajx:wpaper:8
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    More about this item

    Keywords

    DSGE; financial frictions; banking sector; Kazakhstan;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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