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Asymmetric Macro-Financial Spillovers

Listed author(s):
  • Bluwstein, Kristina

    ()

    (European University Institute)

The 2008 financial crisis has shown that financial busts can influence the real economy. However, there is less evidence to suggest that the same holds for financial booms. Using a Markov-Switching vector autoregressive model and euro area data, I show that financial booms tend to be less procyclical than financial busts. To identify the sources of asymmetry, I estimate a non-linear DSGE model with a heterogeneous banking sector and an occasionally binding borrowing constraint. The model matches the key features of the data and shows that the borrowers’ balance sheet channel accounts for the asymmetry in the macro-financial linkages. The muted macro-financial transmission during financial booms can be exploited for macroprudential policies. By comparing capital buffer rules with monetary policy ‘leaningagainst- the-wind’ rules, I find that countercyclical capital buffers improve welfare.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2017/rap_wp337_170221.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 337.

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Length: 40 pages
Date of creation: 01 Feb 2017
Handle: RePEc:hhs:rbnkwp:0337
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Sveriges Riksbank, SE-103 37 Stockholm, Sweden

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Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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  2. Gambacorta, Leonardo & Signoretti, Federico M., 2014. "Should monetary policy lean against the wind?," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 146-174.
  3. Claudio Borio, 2014. "The financial cycle and macroeconomics: what have we learned and what are the policy implications?," Chapters,in: Financial Cycles and the Real Economy, chapter 2, pages 10-35 Edward Elgar Publishing.
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  14. Lars E.O. Svensson, 2014. "Inflation Targeting and "Leaning against the Wind"," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 103-114, June.
  15. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, September.
  16. Gabriel Bruneau & Ian Christensen & Césaire Meh, 2016. "Housing Market Dynamics and Macroprudential Policy," Staff Working Papers 16-31, Bank of Canada.
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