FIRSTRUN Deliverable 4.6 published: A description of the macroprudential policy block of the NiGEM model

Abstract: In this paper we incorporate a macroprudential policy model within a semi-structural global macroeconomic model, NiGEM. The existing NiGEM model is expanded to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital adequacy targets. The former has an effect on the economy via its impact on the housing market while the latter acts on the lending spreads of corporate and households. A systemic risk index that tracks the likelihood of the occurrence of a banking crisis is modelled to establish thresholds at which macroprudential policies should be activated by the authorities. Explicit modelling of a systemic risk index also allows for a cost-benefit analysis of macroprudential policy.

Authors:
Oriol Carreras, NIESR
Philip Davis, NIESR and Brunel University
Iana Liadze, NIESR
Rebecca Piggott, NIESR
James Warren, NIESR