Macroprudential policy analysis in a DSGE framework

Ing. Sugarkhuu Radnaa

Master's thesis

Abstract:

Since the onset of the 2007-2008 financial crisis, the need to enhance the understanding of interactions between the financial sector and the overall economy have become essential for both policymaking and academic research. This thesis explores various macroprudential policy designs, the regulations considered being Capital-to-Asset ratio and Loan-to-Value ratio, in the framework of the Dynamic Stochastic General Equilibrium model with banking sector developed by Gerali et al., 2010. Adopting flexible regulations which react to economic situation seem to decrease the volatility in the overall economy and, thus, are recommended for policymaking. Announcing changes in regulations earlier seem to have more pronounced impact on the economy.

Abstract:

Since the onset of the 2007-2008 financial crisis, the need to enhance the understanding of interactions between the financial sector and the overall economy have become essential for both policymaking and academic research. This thesis explores various macroprudential policy designs, the regulations considered being Capital-to-Asset ratio and Loan-to-Value ratio, in the framework of the Dynamic Stochastic General Equilibrium model with banking sector developed by Gerali et al., 2010. Adopting flexible regulations which react to economic situation seem to decrease the volatility in the overall economy and, thus, are recommended for policymaking. Announcing changes in regulations earlier seem to have more pronounced impact on the economy.

Keywords

Macroprudential policy, DSGE with banking sector, Financial frictions

Language used: English

Date on which the thesis was submitted / produced: 13. 5. 2019

Thesis defence

• Date of defence: 25. 6. 2019
• Supervisor: Mgr. Martin Slanicay, Ph.D.
• Reader: Ing. Miroslav Hloušek, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance and Accounting / Finance (Eng.)