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Modelling and simulating the banking sectors of the US, Germany and the UK

Author

Listed:
  • Iana Liadze
  • Professor E. Philip Davis

Abstract

The need to understand the dynamics and after-effects of the recent financial crisis, the evolution of macroprudential surveillance and the introduction of macroprudential regulation all require appropriate macroeconomic models of financial institutions and markets. We present models of the banking systems of the UK, US and Germany integrated into the NiGEM global macroeconomic model. These estimated models permit an evaluation both of the effectiveness of macro-prudential policies and their interaction with monetary and fiscal policy. A key policy implication is to remind us that tightening of regulation is not a free good” but does impact on the economy via the cost of credit. Meanwhile, the impact of macroprudential policies is quite small on the overall economy, suggesting their use in overall macroeconomic stabilisation as a counterpart to monetary policy may be limited although the effect on lending growth and hence potentially in restraining credit booms is more marked. We contend that increasingly active macroprudential policies will make such models as those presented here essential to a correct ongoing calibration and evaluation of policy.

Suggested Citation

  • Iana Liadze & Professor E. Philip Davis, 2012. "Modelling and simulating the banking sectors of the US, Germany and the UK," National Institute of Economic and Social Research (NIESR) Discussion Papers 396, National Institute of Economic and Social Research.
  • Handle: RePEc:nsr:niesrd:396
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    References listed on IDEAS

    as
    1. Robert Anderton & Ray Barrell, 1995. "The ERM and structural change in European labour markets: A study of 10 countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 131(1), pages 47-66, March.
    2. repec:nsr:niesrd:40 is not listed on IDEAS
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    Cited by:

    1. McInerney, Niall, 2019. "Macroprudential Policy, Banking and the Real Estate Sector," MPRA Paper 91777, University Library of Munich, Germany.
    2. Niall McInerney, 2016. "A Structural Model of Macroprudential Policy: the Case of Ireland," EcoMod2016 9643, EcoMod.
    3. Gerlach-Kristen, Petra & Mc Inerney, Niall, 2014. "The Role of Credit in the Housing Market," Papers WP495, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    Macroprudential policy; macroeconomic models; banking system; capital adequacy; bank lending spreads;
    All these keywords.

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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