Financial Crises in DSGE Models: Selected Applications of MAPMOD

By Jaromir Benes, Michael Kumhof, Douglas Laxton

April 4, 2014

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Format: Chicago

Jaromir Benes, Michael Kumhof, and Douglas Laxton. Financial Crises in DSGE Models: Selected Applications of MAPMOD, (USA: International Monetary Fund, 2014) accessed September 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper, together with a technical companion paper, presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of both the pre-crisis and crisis phases of financial cycles.

Subject: Asset prices, Bank credit, Banking, Capital adequacy requirements, Financial statements

Keywords: Bank borrower, Banks' risk perception, Lending condition, Lending loss, Lending spread, Real asset, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/056
Stock No:

WPIEA2014056
ISBN:

9781475540239
ISSN:

1018-5941

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