Deliverable 4.8 “Implementing macroprudential policy in NiGEM” published

FIRSTRUN deliverable 4.8 “Implementing macroprudential policy in NiGEM” has been published.

This is the second of two papers in which we incorporate a macroprudential policy block within the National Institute’s Global Econometric Model, NiGEM. The first paper provided the theoretical background and description of how NiGEM model is expanded to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital adequacy targets along with a systemic risk index that tracks the likelihood of the occurrence of a banking crisis. This paper starts from the extensions to NiGEM for the UK, Germany and Italy . We then show counterfactual scenarios, including a historic dynamic simulation of the subprime crisis and the endogenous response of policy thereto, based on the macroprudential block as well as performing a cost-benefit analysis of macroprudential policies. Conclusions are drawn relating to use of this tool for prediction and policy analysis, as well as some of the limitations and potential further research.

Oriol Carreras, NIESR
E. Philip Davis, NIESR and Brunel University
Iana Liadze, NIESR
Rebecca Piggott, NIESR
Ian Hurst, NIESR