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The financial accelerator and the real economy: A small macroeconometric model for Norway with financial frictions

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  • Hammersland, Roger
  • Træe, Cathrine Bolstad

Abstract

This paper studies the salient features of a core macro econometric model that allows for self-reinforcing co-movements between credit, asset prices and real economic activity. In contrast to the economic literature that cultivates highly stylized model representations aimed at illustrating the workings and the implications of such a feature, the model of this paper integrates two mutually reinforcing financial accelerator mechanisms within the framework of a fully-fledged core macroeconomic model. The impulse responses of such a model is in line with the ones typical of SVAR/DSGE models, though the amplitude of shocks is in most cases stronger than the ones pertaining to these kinds of models. This is due to the workings of the financial accelerators that contribute to magnify the effects of shocks to the economy. A forecast comparison undertaken between our model and an alternative macro econometric model without a financial block, suggests that financial feedback mechanisms may be forecast improving.

Suggested Citation

  • Hammersland, Roger & Træe, Cathrine Bolstad, 2014. "The financial accelerator and the real economy: A small macroeconometric model for Norway with financial frictions," Economic Modelling, Elsevier, vol. 36(C), pages 517-537.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:517-537
    DOI: 10.1016/j.econmod.2013.04.051
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    Cited by:

    1. Arvid Raknerud & Bjørn Helge Vatne, 2012. "The relation between banks' funding costs, retail rates and loan volumes: An analysis of Norwegian bank micro data," Working Paper 2012/17, Norges Bank.
    2. Christian Glocker & Serguei Kaniovski, 2022. "Macroeconometric forecasting using a cluster of dynamic factor models," Empirical Economics, Springer, vol. 63(1), pages 43-91, July.
    3. Soltani , Sedigheh & Falihi , Nemat & Mehrabiyan , Azadeh & Amiri , Hossein, 2021. "Investigating the Effects of Monetary and Financial Shocks on the Key Macroeconomic Variables, Focusing on the Intermediary Role of Banks Using DSGE Models," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(4), pages 477-500, December.
    4. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    5. Arvid Raknerud & Bjørn Helge Vatne, 2013. "The relations between bank-funding costs, retail rates, and loan volumes. Evidence form Norwegian microdata," Discussion Papers 742, Statistics Norway, Research Department.
    6. Kapur, Muneesh, 2018. "Macroeconomic Policies and Transmission Dynamics in India," MPRA Paper 88566, University Library of Munich, Germany.
    7. Akram, Q. Farooq, 2014. "Macro effects of capital requirements and macroprudential policy," Economic Modelling, Elsevier, vol. 42(C), pages 77-93.
    8. Benedictow, Andreas & Hammersland, Roger, 2020. "A financial accelerator in the business sector of a macroeconometric model of a small open economy," Economic Systems, Elsevier, vol. 44(1).
    9. Anthony Brassil & Mike Major & Peter Rickards, 2022. "MARTIN Gets a Bank Account: Adding a Banking Sector to the RBA's Macroeconometric Model," RBA Research Discussion Papers rdp2022-01, Reserve Bank of Australia.
    10. Ferrari, Massimo, 2014. "The financial meltdown: a model with endogenous default probability," MPRA Paper 59419, University Library of Munich, Germany.

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    More about this item

    Keywords

    The financial accelerator; Structural vector error correction modelling; Impulse response analysis; Forecasting;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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