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Risk Amplification Macro Model (RAMM)

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  • Kerem Tuzcuoglu

Abstract

The Risk Amplification Macro Model (RAMM) is a new nonlinear two-country dynamic model that captures rare but severe adverse shocks. Tail risk arises from heightened financial stress abroad or in Canada that triggers a regime change with a negative feedback loop to the real economy. We rely on a combination of sign, zero and elasticity restrictions to identify structural shocks. The foreign block (global and US variables) impacts the domestic block (a large number of Canadian macrofinancial variables), but not vice-versa. Simulations suggest that tighter financial conditions in the United States can spill over to Canada, and a regime change in macrofinancial elasticities provides a good replication of economic downturns. The RAMM can be used to assess the financial stability implications of both domestic and foreign-originated risk scenarios.

Suggested Citation

  • Kerem Tuzcuoglu, 2023. "Risk Amplification Macro Model (RAMM)," Technical Reports 123, Bank of Canada.
    • Handle: RePEc:bca:bocatr:123
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    Cited by:

    1. Donald Coletti, 2023. "A Blueprint for the Fourth Generation of Bank of Canada Projection and Policy Analysis Models," Discussion Papers 2023-23, Bank of Canada.
    2. Tuzcuoglu, Kerem, 2024. "Nonlinear transmission of international financial stress," Economic Modelling, Elsevier, vol. 139(C).

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    More about this item

    Keywords

    Business fluctuations and cycles; Econometric and statistical methods; Financial stability; Monetary policy transmission;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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