Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-20T08:38:58.281Z Has data issue: false hasContentIssue false
  • English
  • Français

Modelling the UK Banking Sector

Published online by Cambridge University Press:  26 March 2020

Ray Barrell ,
Simon Kirby  and
E. Philip Davis
Ray Barrell*
Affiliation:
National Institute of Economic and Social Research
*
e-mail [email protected]
Get access Rights & Permissions [Opens in a new window]

Extract

The financial crisis that emerged during 2007 and overwhelmed the financial system in late 2008 also brought to the fore some of the obvious failings of the style of modelling that had been fashionable in central banks in the previous decade. The shift to Dynamic Stochastic General Equilibrium models (DSGE) of whatever sort left no real scope for money and financial markets to have an impact on the real economy. This was in part because equilibrium models based on theory are unlikely to be designed to cope with a period of disequilibrium, which is when the financial system becomes important in macroeconomics. DSGE models come in various guises, and it was common to operate with a three-equation model with demand, supply and the interest rate as the equations. It is hard to see how the financial sector could fit into this, or what use it would be even if it were included. Larger DSGE models that respect the national income identity are easier to augment with a financial sector; but even that developed by the US Federal Reserve (see Edge, Kiley and Laforte, 2010) tends to return to equilibrium rather more rapidly than seems reasonable.

Type
The UK Economy
Information
National Institute Economic Review , Volume 214 , October 2010 , pp. F67 - F72
Copyright
Copyright © 2010 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barrell, R., Davis, E.P., Fic, T., Holland, D., Kirby, S. and Liadze, I. (2009), ‘Optimal regulation of bank capital and liquidity: how to calibrate new international standards’, FSA Occasional paper no. 38, October.Google Scholar
Barrell, R., Davis, E., Liadze, I. and Karim, D. (2010), ‘The effects of banking crises on potential output in OECD countries’, National Institute Discussion Paper no. 358.Google Scholar
Barrell, R., Davis, E.P., Karim, D. and Liadze, I. (2010a), ‘Calibrating macroprudential policy’, National Institute Discussion Paper no. 354.Google Scholar
Barrell, R., Davis, E.P., Karim, D. and Liadze, I. (2010b), ‘Bank regulation, property prices and early warning systems for banking crises in OECD countries’, NIESR Working Paper 331, Journal of Banking and Finance, 34, pp. 2255–64.CrossRefGoogle Scholar
Barrell, R., Davis, E.P., Karim, D. and Liadze, I. (2010c), ‘Was the subprime crisis unique? An analysis of the factors that help predict banking crises in OECD countries’, National Institute Discussion Paper no. 363.Google Scholar
Barrell, R. and Holland, D. (2007), ‘Banking crises and economic growth’, National Institute Economic Review, 202, October, pp. 34–41.CrossRefGoogle Scholar
Barrell, R., Holland, D. and Karim, D. (2010), ‘Tighter financial regulation and its impact on global growth’, National Institute Economic Review, 213, July, pp. F39–F44.CrossRefGoogle Scholar
BIS (2010), ‘Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements - Interim Report’, Basel, Bank for International Settlements.Google Scholar
Cecchetti, S. (2010), ‘Financial reform; a progress report’, Westminster Economic Forum, 4 October, London, NIESR.Google Scholar
Edge, R., Kiley, M. and Laforte, J.P. (2010), ‘A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model’, Journal of Applied Econometrics, 25, 4, pp. 720–54.CrossRefGoogle Scholar
Elliott, D.J. (2009), ‘Quantifying the effects on lending of increased capital requirements’, Pew Financial Reform Project, Briefing Paper no. 7.Google Scholar
Francis, W. and Osborne, M. (2009), ‘Bank regulation, capital and credit supply: measuring the impact of Prudential Standard FRA’, Occasional Paper no. 36.Google Scholar
Shularick, M. and Taylor, A. (2010), ‘Credit booms gone bust: monetary policy, leverage cycles and financial crises 18702008’, NBER Working Paper no. 15512.Google Scholar
Tobin, J. (1963), ‘Commercial banks as creators of “money”’, Chapter 22 in Carson, D. (ed.) (1963), Banking and Monetary Studies, Homewood, Ill., Richard D. Irwin Inc., pp. 408–19.Google Scholar