Asymmetric macro-financial spillovers
Title: Asymmetric macro-financial spillovers
Author: BLUWSTEIN, Kristina
Series/Number: Sveriges Riksbank Working Paper Series; 2017/337
The 2008 financial crisis has shown that financial busts can influence the real economy. However, there is less evidence to suggest that the same holds for financial booms. Using a Markov-Switching vector autoregressive model and euro area data, I show that financial booms tend to be less procyclical than financial busts. To identify the sources of asymmetry, I estimate a non-linear DSGE model with a heterogeneous banking sector and an occasionally binding borrowing constraint. The model matches the key features of the data and shows that the borrowers’ balance sheet channel accounts for the asymmetry in the macro-financial linkages. The muted macro-financial transmission during financial booms can be exploited for macroprudential policies. By comparing capital buffer rules with monetary policy ‘leaningagainst-the-wind’ rules, I find that countercyclical capital buffers improve welfare.
Subject: Macro-financial linkages; Non-linearities; Markov-switching VAR; Credit channel; Occasionally binding constraints; E44; E58; E52
Published online: 21 February 2017
Type of Access: openAccess
Succeeding version: http://hdl.handle.net/1814/49990
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