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Enhancing the financial sector linkages in the Bureau for Economic Research’s core macroeconometric model

Author

Listed:
  • Christelle Grobler

    (Bureau for Economic Research, University of Stellenbosch)

  • Ben Smit

    (Bureau for Economic Research, University of Stellenbosch)

Abstract

The recent Great Financial Crisis (GFC) highlighted the importance of the development of financial sector linkages in macroeconomic models. The aim of this paper is to present the enhanced linkages from the financial sector to real economic activity in the Bureau for Economic Research’s (BER) core traditional semi-structural quarterly macroeconometric model. While many central banks have developed DSGE-type models, many national treasuries and other institutions use models similar to the BER’s core model. There is a large body of available literature on incorporating the financial sector into DSGE-type models, but this literature is rather limited for more traditional forecasting models. An additional objective was to add to this body of literature in documenting the changes to the BER’s model. Apart from incorporating the BER’s finance-neutral measure of potential output (see Kemp, 2015), credit markets and assets prices are now model determined. Also, banking sector variables such as the capital adequacy and liquidity ratios as well as the EY Financial Services (as surveyed by the BER) indicators on the credit standards of retail banks influence lending rate spreads faced by households and firms. The aim was to broaden the monetary transmission mechanism in the model so that the financial sector has an explicit impact on real variables in addition to the usual interest rate and exchange rate channels. This is illustrated by comparing the results of a similar sized interest rate shock before and after the model enhancements.

Suggested Citation

  • Christelle Grobler & Ben Smit, 2015. "Enhancing the financial sector linkages in the Bureau for Economic Research’s core macroeconometric model," Working Papers 21/2015, Stellenbosch University, Department of Economics.
    • Handle: RePEc:sza:wpaper:wpapers254
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    References listed on IDEAS

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    Cited by:

    1. Vafa Anvari & Channing Arndt & Faaiqa Hartley & Konstantin Makrelov & Kenneth Strezepek & Tim Thomas & Sherwin Gabriel & Bruno Merven, 2022. "AclimatechangemodellingframeworkforfinancialstresstestinginSouthernAfrica," Working Papers 11030, South African Reserve Bank.
    2. Shaun de Jager & Riaan Ehlers & Keabetswe Mojapelo & Pieter Pienaar, 2021. "Shortterm impacts and interaction of macroprudential policy tools," Working Papers 11020, South African Reserve Bank.
    3. Christopher Loewald & David Faulkner & Konstantin Makrelov, 2020. "Time consistency and economic growth a case study of south african macroeconomic policy," Working Papers 10421, South African Reserve Bank.

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    More about this item

    Keywords

    Macroeconometric model; banking sector; capital adequacy ratio; liquidity ratio; credit standards;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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