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Practical Macrofinancial Stability Analysis: A Prototype Semistructural Model

Author

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  • Jaromir Benes
  • Tomas Motl
  • David Vavra

Abstract

We introduce the mess, the MacroEconomic Stress Scenario builder, as a macroprudential modeling framework for practical application at policymaking institutions. The framework synthesizes the key insights from academic literature on financial cycles, interactions between the real economy and the financial system, and macroprudential policy. It features an explicit description of gross quantities on the financial sector’s balance sheet and explicit concepts of demand and supply on the credit market. The key equations linking the real economy and the financial sector are nonlinear, making it possible to realistically examine the costs and benefits of macroprudential policy. The intended use of the model is for policymaking institutions that need a tool which is theoretically consistent, but also malleable and flexible enough to be able to fit particular features of the economy and financial sector. The framework is already in use by financial stability authorities in several countries. This paper presents the model itself, the principles on which it is built, and use cases in policymaking institutions.

Suggested Citation

  • Jaromir Benes & Tomas Motl & David Vavra, 2023. "Practical Macrofinancial Stability Analysis: A Prototype Semistructural Model," CERGE-EI Working Papers wp746, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp746
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    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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