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New methods for macro-financial model comparison and policy analysis

date Date: August 7, 2015
date Author(s): Volker Wieland, Elena Afanasyeva, Meguy Kuete, Jinhyuk Yoo
date Affiliation: Goethe University Frankfurt - Bank of Korea

The global financial crisis and the ensuing criticism of macroeconomics have inspired researchers to explore new modeling approaches. There are many new models that aim to better integrate the financial sector in business cycle analysis and deliver improved estimates of the transmission of macroeconomic policies. Policy making institutions need to compare available models of policy transmission and evaluate the impact and interaction of policy instruments in order to design effective policy strategies. This chapter presents a framework for comparative analysis together with applications using a range of recent macro-financial models. It builds on and extends earlier work on model comparison in the area of monetary and fiscal policy. The computational implementation enables individual researchers to conduct systematic model comparisons and policy evaluations easily and at low cost. It also contributes to improving reproducibility of computational research in macroeconomic modeling. An application presents comparative results concerning the dynamics and policy implications of different macro-financial models. These models account for financial accelerator effects in investment financing, credit and house price booms and a role for bank capital. Monetary policy rules are found to have an important influence on the comparisons. Finally, an example concerning the impact of leaning against credit growth in monetary policy is discussed. 

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