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Evaluation of macroeconomic models for financial stability analysis

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

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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  • Gunnar Bardsen & Kjersti-Gro Lindquist & Dimitrios P.Tsomocos, 2006. "Evaluation of macroeconomic models for financial stability analysis," OFRC Working Papers Series 2006fe01, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2006fe01
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    1. Q. Akram & Gunnar Bårdsen & Kjersti-Gro Lindquist, 2007. "Pursuing financial stability under an inflation-targeting regime," Annals of Finance, Springer, vol. 3(1), pages 131-153, January.
    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, vol. 0(4), pages 124-133, December.
    3. Rasmus Kattai, 2010. "Credit risk model for the Estonian banking sector," Bank of Estonia Working Papers wp2010-01, Bank of Estonia, revised 04 Feb 2010.
    4. Fioramanti, Marco & Vicarelli, Claudio, 2011. "The New Stability and Growth Pact: Primum non nocere," CEPS Papers 4370, Centre for European Policy Studies.
    5. Dale F. Gray & Robert C. Merton & Zvi Bodie, 2007. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," NBER Working Papers 13607, National Bureau of Economic Research, Inc.
    6. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers 119, Netherlands Central Bank, Research Department.
    7. Hernando Vargas Herrera & 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 382, Banco de la Republica de Colombia.
    8. Bo Jiang & Bruce Philp & Zhongmin Wu, 2018. "Macro stress testing in the banking system of China," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(4), pages 287-298, November.
    9. 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.
    10. 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).
    11. Eric Tymoigne, 2010. "Detecting Ponzi Finance: An Evolutionary Approach to the Measure of Financial Fragility," Economics Working Paper Archive wp_605, Levy Economics Institute.
    12. Agustín Saade & Daniel Osorio & Dairo Estrada, 2007. "An equilibrium approach to financial stability analysis: the Colombian case," Annals of Finance, Springer, vol. 3(1), pages 75-105, January.
    13. Dovern, Jonas & Meier, Carsten-Patrick & Vilsmeier, Johannes, 2010. "How resilient is the German banking system to macroeconomic shocks?," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1839-1848, August.
    14. Mr. James P Walsh & Mr. Dale F Gray, 2008. "Factor Model for Stress-testing with a Contingent Claims Model of the Chilean Banking System," IMF Working Papers 2008/089, International Monetary Fund.
    15. David Pérez-Reyna, 2009. "Una aproximación para analizar la estabilidad financiera por medio de un DSGE," Temas de Estabilidad Financiera 040, Banco de la Republica de Colombia.
    16. 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 668, Statistics Norway, Research Department.
    17. Magdalena Ziolo & Beata Zofia Filipiak & Iwona Bąk & Katarzyna Cheba, 2019. "How to Design More Sustainable Financial Systems: The Roles of Environmental, Social, and Governance Factors in the Decision-Making Process," Sustainability, MDPI, Open Access Journal, vol. 11(20), pages 1-34, October.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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