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Evaluation of macroeconomic models for financial stability analysis

  • Gunnar Bardsen
  • Kjersti-Gro Lindquist
  • Dimitrios P.Tsomocos

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 Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2006fe01.

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Date of creation: 2006
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Handle: RePEc:sbs:wpsefe:2006fe01
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