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Download Impact of Macroprudential Policy Measures on Economic Dynamics: Simulation Using
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Impact of Macroprudential Policy Measures on Economic Dynamics: Simulation Using a Financial Macro-econometric Model Some comments by David Hargreaves, RBNZ • Very interesting and useful approach • Impact of macroprudential policy subtly different to RBNZ view • 1 Key suggestion for model development The FMM model • Bank balance sheets with risk based credit pricing • Estimated empirical asset prices and credit flows • Ability to induce expectation driven cycles • Policy can restrain aggregate credit growth Big advantages of approach • Able to test various ‘signal values’ for implementation, and recognition lags. • Can shift regulatory perimeter and alter details/strength of regulation • Empirically founded dynamics: hopefully realistic lags/magnitudes But nothing comes free • Inevitably aspects of structure are arbitrary - Banks can’t raise capital - Boom is always ‘false’ and of fixed duration - No household or firm balance sheets or ‘debt overhang’ Macro-pru: FMM vs RBNZ view FMM RBNZ (LVRs) Restrains overall/sectoral Restrains riskier lending credit growth in boom during boom Limited impacts during bust because credit demand weak Reduces cycle in land prices, GDP Limits distress/bankruptcy of borrowers in bust Reduce cycle in land prices, GDP (more) Reduces average level of Impact on average GDP GDP not clear • Could consider adding corporate/household balance sheet • When expectation boom ends, borrowers seek to deleverage. • Recession worse if more/risky debt extended – key role for policy • Ideally mix ‘false’ and ‘true’ productivity shocks: create diagnostic problem for regulator Adding balance sheets in ‘semistructural’ way • Caballero/Krishnamurthy? • Gray and Malone
