## 2. Banks in GIMF-BANKS

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### Model framework and key features
- GIMF-BANKS follows the model by Benes and Kumhof (2011).
- Banks have non-zero net worth and are exposed to non-diversifiable aggregate risk determined endogenously on the basis of an optimal standard nominal debt contract.
- The ex-ante contracted interest rate between the bank and the borrower is not state-contingent and cannot be re-set later, so unexpected changes in fundamentals generate bank profits or losses and thereby change bank net worth.
- Limited liability for shareholders and penalties imposed by regulators for breaches of capital-adequacy requirements create incentives for banks to hold endogenous regulatory capital buffers.

### Capital-adequacy regulation and calibration
- Basel-III-style minimum capital-adequacy ratio (MCAR) in the model:
  - Minimum equity requirement: 8 percent of total assets.
  - Model calibrated steady-state bank equity: 10.5 percent of total assets (consistent with 8 percent minimum plus 2.5 percent capital buffer).
  - Basel-III countercyclical capital buffer option is incorporated.
- Regulation modeled as penalties: banks that do not maintain minimum equity must pay a penalty equal to a fraction of their assets.
- Behavioral implication: banks trade off the cost of holding higher equity versus the expected penalty cost under unfavorable shocks; this induces endogenous capital buffers under uncertainty.

### Banking sector structure and balance-sheet mechanics
- Stylized two-tier banking sector:
  - Retail banks write nominal debt contracts with entrepreneurs and obtain funding from wholesale banks.
  - Profits or losses of retail banks are transferred to wholesale banks.
  - Wholesale banks face the capital regulation penalty and choose the wholesale rate (cost of funds for retail banks).
  - Continuum of wholesale banks with idiosyncratic shocks ⇒ distribution of capital-adequacy ratios; only a fraction pay penalties each period.
- Balance-sheet identity in GIMF-BANKS:
  - Bank liabilities = bank deposits + bank equity.
  - Bank equity is a state variable with an accumulation equation, introducing an additional financial accelerator.
  - Balance sheet problems can occur simultaneously on bank and borrower balance sheets.

### Interest rate spreads and decomposition
- The retail borrower spread (retail rate − policy rate) decomposed into:
  - External financing spread: retail rate − wholesale-bank rate. Reflects borrower riskiness given banking sector leverage.
  - Wholesale spread: wholesale-bank rate − policy (risk-free) rate. Increasing in banks’ leverage because higher leverage raises probability of breaching MCAR and paying penalties.
- Definitions and calibration notes:
  - Bank loans: percent deviation from steady state.
  - Basel-III capital-adequacy ratio: measured in percentage points of total assets.
  - Interest rate spreads: percentage point differences between ex-ante rates.
  - Wholesale lending spread: difference between wholesale lending rate (rate for a notional riskless borrower) and policy rate; positive in steady state in GIMF-BANKS.
  - External financing spread (as used here) differs from the external financing premium of Bernanke, Gertler, and Gilchrist (1999); the model calibrates the steady-state external financing premium in GIMF-BANKS to match that used in GIMF-BGG for backward compatibility.

### Four key differences versus GIMF-BGG
- Profit condition:
  - GIMF-BGG: zero-profit condition for banks in all states.
  - GIMF-BANKS: zero-profit condition holds only ex ante; shock realizations imply profits or losses.
- Balance sheet identity:
  - GIMF-BANKS: loans = deposits + equity.
  - GIMF-BGG: loans = deposits.
- Bank equity:
  - GIMF-BANKS: bank equity is a new state variable with accumulation dynamics, adding a banking-sector financial accelerator.
  - GIMF-BGG: bank equity is zero.
- Lending to riskless borrower:
  - GIMF-BGG: lending rate to notional riskless borrower = policy rate.
  - GIMF-BANKS: lending rate to same notional riskless borrower = policy rate + spread reflecting Basel-III cost.

### Calibration numerical values and steady-state differences
- Entrepreneurs’ equity: 66 percent of GDP (identical in GIMF-BGG and GIMF-BANKS).
- Bank equity:
  - GIMF-BGG: zero.
  - GIMF-BANKS: 7 percent of GDP.
- Implication: GIMF-BANKS includes additional risk-bearing equity in the economy able to absorb shocks.

### Loan-loss expression and interpretation
- Loan losses expression (notation preserved):
  ˇΛ`_t = x/r`,t ˇ`_{t−1} − q_{t−1} ˇk_{t−1} r e_t^{k,t} γ_t .(1)
- Interpretation:
  - First term: real ex-post cost of funds borrowed at nominal wholesale rate i_{`,t−1}, where real wholesale lending rate r_{`,t} = i_{`,t−1}/π_t; unexpected higher inflation reduces real loan losses ceteris paribus.
  - Second term: banks’ share γ_t of return on capital installed by borrowers in previous period, q_{t−1} ˇk_{t−1} r e_t^{k,t}; larger-than-expected financial return to capital or higher γ_t reduces loan losses.
  - On impact of positive demand shocks, banks’ share γ_t remains almost unchanged while financial return to capital increases; however the increase in return is almost exactly offset by a reduction in banks’ share of that return because limited liability makes borrowers the residual claimants.

### Role of banks in transmission of fiscal, demand, and monetary shocks — selected quantitative findings
- Fiscal stimulus (two-year increase in government consumption or government investment by 1 percentage point of baseline GDP):
  - Government consumption shock:
    - Real GDP: slightly less than 1 percent increase for two years.
    - Headline inflation: rises by around a quarter of one percentage point.
  - Government investment shock:
    - Real GDP: just over 1 percent increase after two years and stays above baseline thereafter.
    - Inflation effects similar to consumption case.
  - In GIMF-BANKS, capital-adequacy ratio changes by between 0.25 and 0.30 percentage points of total assets in these fiscal simulations.
  - Wholesale lending spread can fall by 7-9 basis points due to improved bank balance sheets, stimulating investment modestly.
  - External financing spread adjustments partly offset wholesale spread changes, so aggregate effects on GDP remain small; GDP behavior is very similar between GIMF-BGG and GIMF-BANKS.
- Lump-sum transfers (increase by 1 percentage point of baseline GDP for two years):
  - Targeted to LIQ households:
    - Real GDP: increases by around 0.4 percent.
    - Inflation: rises by around 0.15 percentage points.
    - Fiscal multiplier: around 0.4.
  - Paid equally to all households:
    - Effects qualitatively similar but about one quarter the magnitude of targeted transfers.
  - Differences between GIMF-BGG and GIMF-BANKS: quantitatively small.
- Tax cuts (reduction equal to 1 percent of baseline GDP for two years):
  - All three tax cuts (consumption, labor income, capital income) produce modest GDP gains of 0.25–0.30 percent.
  - Demand boost raises bank profits and share of banks’ net worth on assets, lowering wholesale lending spreads; effects largest for capital income tax cut, smallest for labor income tax cut.
  - Fiscal multipliers well below unity for tax-based measures.
- Monetary policy shock (temporary increase in nominal policy rate by 100 basis points on impact):
  - U.S. GDP: decreases by almost 0.7 percent on impact.
  - Headline inflation: decreases by over 0.2 percentage points at trough in second year.
  - In GIMF-BANKS, monetary tightening induces bank loan losses, lowering capital-adequacy ratios and raising wholesale lending spread by around 8 basis points on impact; this is almost completely offset by a smaller increase in the external financing spread relative to GIMF-BGG, leaving investment and GDP effects close to zero.
- Temporary private demand shock (one-year 1 percentage point increase in private consumption and one-year 4 percentage point increase in private investment):
  - GDP: increases by just over 1 percent in short run.
  - Inflation: peaks around 0.25–0.30 percentage points above target during second year.
  - Bank capital-adequacy ratios and wholesale lending premium improve slightly; differences in investment and GDP across models are small.

### Mechanisms limiting banking-sector amplification
- Improved capital-adequacy ratio and reduced wholesale spread typically translate into modest additional investment only.
- Partial offset by external financing spread movements because borrower-side fundamentals and calibration are similar across GIMF variants; required retail rate adjustments to clear loan markets limit pass-through of wholesale spread changes to aggregate lending rates.
- For many shocks, higher financial returns to capital are almost exactly offset by reduced bank share of returns (γ_t), muting banking-sector amplification; exception: shocks that change borrower riskiness.

### Properties of financial-sector shocks

A. Temporary increase in borrower riskiness — equal impact on external financing spread
- Shock design: external financing spreads increase by 1 percentage point (100 basis points) on impact in both models.
- Macro effects (both models): higher external financing spreads reduce investment and capital stock; household income and wealth decline; trade balance improves modestly; real GDP declines.
- Key differences:
  - GIMF-BANKS:
    - Loan defaults much higher → lending losses → average capital adequacy ratio falls by 2 percentage points: from 10.5 percent to 8.5 percent.
    - Many banks violate or approach MCAR = 8 percent → rush to rebuild equity → wholesale lending spread rises by over 70 basis points on impact.
    - Real lending rate increases by additional 70 basis points (given normalized external financing spread increase of 100 basis points).
    - Loans drop almost 3 percent on impact.
    - Real economy effects roughly twice as large as in GIMF-BGG: GDP, consumption, and investment contract about twice as much.
  - GIMF-BGG: smooth and modest decrease in loans; smaller real effects.
- Mechanism behind loan losses: almost entirely from decrease in banks’ income from lending q_{t-1} β_{k,t-1} r^e_{k,t} γ_t; change in borrower risk distribution raises defaults and reduces banks’ share γ_t so usual offset does not occur.

A.2 Temporary increase in borrower riskiness — equal size shock across models
- When shock sizes are equalized (shock equal to that used in GIMF-BGG):
  - Impulse responses for GIMF-BGG unchanged.
  - Differences between models much smaller than in equal-impact case because:
    - In GIMF-BANKS wholesale lending spread rises almost 50 basis points on impact → reduces corporate borrower leverage and bank loans drop more.
    - Larger drop in bank loans reduces external financing spread, offsetting wholesale spread increase.
  - Net differences in lending rates and real effects remain but are far smaller.

B. Shocks to macroprudential policy settings in GIMF-BANKS

B.1 Fixed versus countercyclical MCAR
- Shock: external financing spread shock of 100 basis points on impact.
- Fixed MCAR (MCAR held at 8 percent):
  - Actual capital-adequacy ratio drops around 2 percentage points on impact → many banks near penalty → wholesale lending spread spikes ~70 basis points as banks rebuild equity.
  - Combined with increased external financing spread → steep initial contraction of investment and GDP.
- Countercyclical MCAR (MCAR = 8 percent + feedback term increasing in percent deviation of loans from initial value; regulator lowers MCAR when lending volume falls):
  - Regulator temporarily lowers MCAR in response to reduced lending → banks can rebuild equity over time rather than immediately.
  - Wholesale lending spread increases far less; external financing spread similar to fixed-MCAR case.
  - Overall lending rates increase much less → impact effect of shock roughly half as large as under fixed MCAR and then smoothed over time.
- Policy insight: countercyclical MCAR materially dampens amplification from borrower-risk shocks; GIMF-BANKS allows analysis of macroprudential design not available in GIMF-BGG.

B.2 Immediate versus gradual increase in MCAR (fixed component)
- Shock: MCAR permanently raised from 8 percent to 10 percent of total assets; immediate implementation versus linear increase over five years.
- Immediate increase:
  - Wholesale lending spread rises almost 90 basis points on impact as banks rush to build equity.
  - External financing spread increases by just over 10 basis points.
  - Total lending spreads increase ~100 basis points, partially buffered by 20 basis points reduction in policy rate.
  - GDP contracts ~0.3 percent on impact; long-run contraction ~0.1 percent.
  - Faster attainment of higher capital ratio entails slightly more volatile output.
- Gradual increase (five years):
  - Smoother equity build-up → wholesale lending spread rises more modestly without an initial spike.
  - External financing spread barely increases on impact and then declines.
  - Real lending rates and real economy evolve much smoother.
- Long-run effects of higher MCAR:
  - Wholesale lending spread increases by 8 basis points.
  - Long-run bank loans permanently lower by around 0.5 percent → permanently lower borrower leverage.
  - External financing spread permanently lower by 2 basis points (partly offsets wholesale spread increase).
  - Final effect on real GDP: approximately 0.1 percent contraction.

### Conclusion — main results summarized
- For standard fiscal, demand and supply shocks:
  - Properties of GIMF-BGG and GIMF-BANKS are very similar because for a given distribution over borrower productivity levels banks’ net loan losses remain small.
- For financial shocks (when distribution over borrower productivity levels changes):
  - Notable differences arise. Example: contractionary shock to borrower riskiness in GIMF-BANKS leads to loan losses and deterioration in regulatory capital-adequacy ratios → banks increase lending spreads for all borrowers → larger real effects. This mechanism is absent in GIMF-BGG.
- GIMF-BANKS enables analysis of macroprudential policy instruments (MCAR) and design (fixed vs countercyclical, immediate vs gradual implementation) that GIMF-BGG cannot provide.

*Source: IMF Working Paper section "2. Banks in GIMF-BANKS" (source content).*

### References .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

### _wp15150 - References

### I. INTRODUCTION
- Paper documents comparative simulation properties of two versions of the IMF’s Global Integrated Monetary and Fiscal Model (GIMF):
  - GIMF-BGG: original GIMF with a conventional financial accelerator mechanism following Bernanke, Gertler, and Gilchrist (1999) and Christiano, Motto, and Rostagno (2014); theory documented in Kumhof and others (2010); simulations in Anderson and others (2013).
  - GIMF-BANKS: identical to GIMF-BGG except for the banking sector, which follows the theory documented in Benes and Kumhof (2011).
- Key structural difference:
  - In GIMF-BGG banks write state-contingent lending contracts, make zero profits in all states, and therefore require no equity; bank balance sheets play no meaningful role.
  - In GIMF-BANKS banks fix lending rates one period ahead, generally make profits or losses under shocks, and face regulatory constraints representing Basel-III capital-adequacy regulations; bank equity serves as a shock absorber and bank balance sheets become essential.
- Comparison approach:
  - Identical country coverage and calibration as in Anderson and others (2013), except for the banking sector.
  - Focus on U.S. macroeconomic response to U.S. shocks (spillovers to other regions are small and show only small differences between models).

### II. THE GLOBAL INTEGRATED MONETARY AND FISCAL MODEL (GIMF)
- Model class and features:
  - Multicountry Dynamic Stochastic General Equilibrium (DSGE) model with optimizing households and firms and full intertemporal stock-flow accounting.
  - Frictions: nominal rigidities in prices and wages; real rigidities in consumption, investment, and imports.
  - Household heterogeneity: non-Ricardian behavior via finite planning horizons and liquidity constraints.
- Implications of finite planning horizons:
  - Steady state net-foreign-asset positions and steady state world real interest rate are endogenously determined by preferences, level of government debt, and taxation structure (including distortionary capital taxes).
  - Finite planning horizons with liquidity constraints generate non-Ricardian responses to spending- and revenue-based fiscal measures, making the model suitable for fiscal policy analysis.
- Asset markets and international trade:
  - Asset markets are incomplete; all financial contracts last one period.
  - Government debt and bank deposits are only held domestically, denominated in domestic currency, and non-contingent.
  - Only assets traded internationally are non-contingent bonds denominated in U.S. dollars.
  - Multiple regions modeled explicitly with all bilateral trade flows and relative prices; version used comprises 5 regions: the United States, the euro area, Japan, emerging Asia (including China), and, as a single entity, remaining countries.

### III. HOUSEHOLD SECTOR
- Household types:
  - Overlapping-generations (OLG) households: finite planning horizon of 20 years; smooth consumption over expected remaining lifetime by borrowing and lending in domestic and international credit markets.
  - Liquidity-constrained (LIQ) households: no access to credit markets; consume disposable income each period; consumption equal to current net income (marginal propensity to consume close to unity; not exactly equal to unity due to consumption taxes).
- Taxes and transfers:
  - Households pay direct taxes on labor income, indirect taxes on consumption spending, and a lump-sum tax; receive government transfers either equally or targeted to LIQ households.
- Saving instruments for OLG households:
  - Domestic government bonds, international U.S. dollar bonds, and deposits in domestic banks.
- Fiscal policy implications:
  - High proportion of LIQ households implies significant fiscal multipliers from temporary changes to taxes and transfer payments.
  - For OLG households with finite planning horizons, a tax cut has a short-run positive effect on demand even when offset by future tax increases that leave government debt unchanged in the long run, because consumption is tilted toward the present.
  - Permanent increases in government debt that raise long-run interest payments will raise real interest rates and crowd out private capital and net foreign assets.
  - Households’ intertemporal elasticity of substitution affects the magnitude of long-run crowding-out effects.

### IV. PRODUCTION SECTOR
- Firms:
  - Produce tradable and nontradable intermediate goods; managed according to preferences of OLG household owners and thus have finite planning horizons.
  - Subject to real rigidities in labor hiring and investment; operate in monopolistically competitive markets with price markups over marginal cost.
  - Goods prices and wages exhibit nominal rigidities; exports priced to local destination markets; imports face quantity adjustment costs.
  - Pay capital income taxes, wages, and economic profits to households; return to capital goes to entrepreneurs who supply capital.
- Investment and financing:
  - Entrepreneurs borrow from banks because retained earnings do not fully finance investment.
  - If earnings fall below contracted interest payments, banks take over entrepreneur capital and realize value net of bankruptcy monitoring costs.
- Public infrastructure:
  - Final output uses public infrastructure (government capital stock) as an input alongside tradable and nontradable intermediate goods; government capital increases productivity.

### V. FINANCIAL SECTOR
- Asset menu and characteristics:
  - Government debt and bank loans: non-contingent, denominated in domestic currency, not tradable across borders.
  - OLG households may issue or purchase internationally tradable U.S.-dollar-denominated obligations.
  - Debt contract maturity is one period; no maturity mismatch exists on banks’ balance sheets.
  - Firms do not issue tradable equity; pay out after-tax cash flow lump-sum to households.
  - Banks provide loans only to domestic entrepreneurs; model does not feature an explicit housing market or housing loans.
- Banking differences across model versions:
  - GIMF-BGG: banks write state-contingent lending contracts ensuring zero profits in each state; no equity or macroprudential regulation required; bank loans equal bank deposits; balance sheet problems arise only among borrower entrepreneurs; banks price loans to reflect lending risk with spreads increasing with borrower leverage.
  - GIMF-BANKS: (described earlier) banks fix lending rates one period ahead, can make profits or losses, and are subject to Basel-III–type capital-adequacy constraints so bank equity matters as a shock absorber.

### VI. MODEL USE AND Scope
- Comparative focus:
  - Sections III through VI of the paper explore responses of the two models to fiscal stimulus shocks, aggregate demand shocks, aggregate supply shocks, and financial sector shocks.
  - Section VII concludes (not included in this content unit).
- Regional focus and generality:
  - Paper focuses on U.S. responses to U.S. shocks; qualitative properties generally hold for other regions’ responses to domestic shocks, subject to region-specific features such as degrees of trade openness, shares of LIQ households, or exchange rate regimes.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp15150.pdf*

### 2.  Banks in GIMF-BANKS

### 2.  Banks in GIMF-BANKS

### Model framework and key features
- GIMF-BANKS follows the model by Benes and Kumhof (2011).
- Banks have non-zero net worth and are exposed to non-diversifiable aggregate risk determined endogenously on the basis of an optimal standard nominal debt contract.
- The ex-ante contracted interest rate between the bank and the borrower is not state-contingent and cannot be re-set later, so unexpected changes in fundamentals generate bank profits or losses and thereby change bank net worth.
- Limited liability for shareholders and penalties imposed by regulators for breaches of capital-adequacy requirements create incentives for banks to hold endogenous regulatory capital buffers.

### Capital-adequacy regulation and calibration
- Basel-III-style minimum capital-adequacy ratio (MCAR) in the model:
  - Minimum equity requirement: 8 percent of total assets.
  - Model calibrated steady-state bank equity: 10.5 percent of total assets (consistent with 8 percent minimum plus 2.5 percent capital buffer).
  - Basel-III countercyclical capital buffer option is incorporated.
- Regulation is modeled as a system of penalties: banks that do not maintain minimum equity must pay a penalty equal to a fraction of their assets.
- Behavioral implication: banks trade off the cost of holding higher equity versus the expected penalty cost under unfavorable shocks; this induces endogenous capital buffers under uncertainty (Milne 2002 idea).

### Banking sector structure and balance-sheet mechanics
- Banking sector stylized as retail and wholesale banks:
  - Retail banks write nominal debt contracts with entrepreneurs and obtain funding from wholesale banks.
  - Profits or losses of retail banks are transferred to wholesale banks.
  - Wholesale banks face the capital regulation penalty and choose the wholesale rate (cost of funds for retail banks).
  - Continuum of wholesale banks with idiosyncratic shocks ⇒ distribution of capital-adequacy ratios; only a fraction pay penalties each period.
- In GIMF-BANKS:
  - Bank liabilities = bank deposits + bank equity.
  - Bank equity is a state variable with an accumulation equation, introducing an additional financial accelerator.
  - Balance sheet problems can occur simultaneously on bank and borrower balance sheets.

### Interest rate spreads and their decomposition
- The spread between the interest rate paid by borrowers (retail rate) and the risk-free rate is composed of two parts:
  - External financing spread: retail rate minus wholesale-bank rate. Reflects borrower riskiness for given leverage in the banking sector.
  - Wholesale spread: wholesale-bank rate minus the policy (risk-free) rate. Increasing in banks’ leverage because higher leverage raises probability of breaching MCAR and paying penalties.
- Definitions used in figures:
  - Bank loans: percent deviation from steady state.
  - Basel-III capital-adequacy ratio: measured in percentage points of total assets.
  - Interest rate spreads: percentage point differences between ex-ante rates.
  - Wholesale lending spread: difference between wholesale lending rate (rate for a notional riskless borrower) and policy rate; positive in steady state in GIMF-BANKS.
  - External financing spread (as used here) differs from the external financing premium of Bernanke, Gertler, and Gilchrist (1999); the model calibrates the steady-state external financing premium in GIMF-BANKS to match that used in GIMF-BGG for backward compatibility.

### Differences between GIMF-BANKS and GIMF-BGG (four key differences)
- Profit condition:
  - GIMF-BGG: zero-profit condition for banks in all states.
  - GIMF-BANKS: zero-profit condition holds only ex ante; shock realizations imply profits or losses.
- Balance sheet identity:
  - GIMF-BANKS: loans = deposits + equity.
  - GIMF-BGG: loans = deposits.
- Bank equity:
  - GIMF-BANKS: bank equity is a new state variable with accumulation dynamics, adding a banking-sector financial accelerator.
  - GIMF-BGG: bank equity is zero.
- Lending to riskless borrower:
  - GIMF-BGG: lending rate to notional riskless borrower = policy rate.
  - GIMF-BANKS: lending rate to same notional riskless borrower = policy rate + spread reflecting Basel-III cost.

### Calibration numerical values and steady-state differences
- Entrepreneurs’ equity: 66 percent of GDP (identical in GIMF-BGG and GIMF-BANKS).
- Bank equity:
  - GIMF-BGG: zero.
  - GIMF-BANKS: 7 percent of GDP.
- Implication: GIMF-BANKS includes additional risk-bearing equity in the economy able to absorb shocks.

### Loan-loss expression and economic intuition
- Loan losses expression in GIMF (notation preserved):
  ˇΛ`_t = x/r`,t ˇ`_{t−1} − q_{t−1} ˇk_{t−1} r e_t^{k,t} γ_t .(1)
- Interpretation:
  - First term: real ex-post cost of funds borrowed at nominal wholesale rate i_{`,t−1}, where real wholesale lending rate r_{`,t} = i_{`,t−1}/π_t; unexpected higher inflation reduces real loan losses ceteris paribus.
  - Second term: banks’ share γ_t of return on capital installed by borrowers in previous period, q_{t−1} ˇk_{t−1} r e_t^{k,t}; larger-than-expected financial return to capital or higher γ_t reduces loan losses.
  - On impact of positive demand shocks, banks’ share γ_t remains almost unchanged while financial return to capital increases; however the increase in return is almost exactly offset by a reduction in banks’ share of that return because limited liability makes borrowers the residual claimants.

### Role of banks in fiscal, demand, and monetary shock transmission (selected quantitative findings)
- Fiscal stimulus (two-year increase in government consumption or government investment by 1 percentage point of baseline GDP):
  - Government consumption shock:
    - Real GDP: slightly less than 1 percent increase for two years.
    - Headline inflation: rises by around a quarter of one percentage point.
  - Government investment shock:
    - Real GDP: just over 1 percent increase after two years and stays above baseline thereafter.
    - Inflation effects similar to consumption case.
  - In GIMF-BANKS, capital-adequacy ratio changes by between 0.25 and 0.30 percentage points of total assets in these fiscal simulations.
  - Wholesale lending spread can fall by 7-9 basis points due to improved bank balance sheets, stimulating investment modestly.
  - External financing spread adjustments partly offset wholesale spread changes, so aggregate effects on GDP remain small; GDP behavior is very similar between GIMF-BGG and GIMF-BANKS.
- Lump-sum transfers (increase by 1 percentage point of baseline GDP for two years):
  - Targeted to LIQ households:
    - Real GDP: increases by around 0.4 percent.
    - Inflation: rises by around 0.15 percentage points.
    - Fiscal multiplier: around 0.4.
  - Paid equally to all households:
    - Effects qualitatively similar but about one quarter the magnitude of targeted transfers.
  - Differences between GIMF-BGG and GIMF-BANKS: quantitatively small.
- Tax cuts (reduction equal to 1 percent of baseline GDP for two years):
  - All three tax cuts (consumption, labor income, capital income) produce modest GDP gains of 0.25–0.30 percent.
  - Bank implications: demand boost raises bank profits and share of banks’ net worth on assets, lowering wholesale lending spreads; effects largest for capital income tax cut, smallest for labor income tax cut.
  - Fiscal multipliers well below unity for tax-based measures.
- Monetary policy shock (temporary increase in nominal policy rate by 100 basis points on impact):
  - U.S. GDP: decreases by almost 0.7 percent on impact.
  - Headline inflation: decreases by over 0.2 percentage points at trough in second year.
  - In GIMF-BANKS, monetary tightening induces bank loan losses, lowering capital-adequacy ratios and raising wholesale lending spread by around 8 basis points on impact; this is almost completely offset by a smaller increase in the external financing spread relative to GIMF-BGG, leaving investment and GDP effects close to zero.
- Temporary private demand shock (one-year 1 percentage point increase in private consumption and one-year 4 percentage point increase in private investment):
  - GDP: increases by just over 1 percent in short run.
  - Inflation: peaks around 0.25–0.30 percentage points above target during second year.
  - Bank capital-adequacy ratios and wholesale lending premium improve slightly; differences in investment and GDP across models are small.

### Mechanisms limiting banking-sector amplification in aggregate outcomes
- Positive bank balance-sheet effects (improved capital-adequacy ratio, reduced wholesale spread) typically translate into modest additional investment only.
- Partial offset by external financing spread movements because borrower-side fundamentals and calibration are similar across GIMF variants; required retail rate adjustments to clear loan markets limit the pass-through of wholesale spread changes to aggregate lending rates.
- For many shocks, the pattern in loan-loss decomposition (higher financial returns to capital offset by reduced bank share of returns) repeats, muting banking-sector amplification; exception: shocks to borrower riskiness (studied in Section VI, not included here).

*Italic: IMF Working Paper section "2. Banks in GIMF-BANKS" (source content).*

### 1.   Permanent Increase in the Level of Productivity

### 1.   Permanent Increase in the Level of Productivity

### Permanent one percent increase in level of labor-augmenting productivity (tradable and nontradable intermediate goods sectors)
- Immediate effects:
  - Marginal product of capital increases → boosts investment.
  - Household income and wealth increase → boosts private consumption.
  - Disinflationary effect initially dominates, but is small: around 0.05 percentage points during the first and second years following the shock.
  - Policy rate declines → real interest rates fall → additional upward pressure on investment and consumption.
  - Real effective exchange rate persistently depreciates (drop in domestic costs of production).
  - Trade balance goes into a prolonged deficit due to investment boom and permanent capital stock adjustment.
- Financial sector comparison:
  - Little difference between GIMF-BGG and GIMF-BANKS for this shock.
  - Spread between retail and deposit rates is very small given shock size.
  - Corporate insolvency rate drops more in GIMF-BGG than in GIMF-BANKS, consistent with lower external financing spread on average.
  - Banks extend loans and loan book expands faster than net worth → small increase in wholesale lending spread.

### Persistent ten-year anticipated increase in growth rate of labor-augmenting productivity
- Calibration and long-run outcome:
  - Calibrated to increase steady-state real GDP each year by just under 0.25 percent.
  - Increases level of real GDP by end of ten years by just over 2 percent.
- Transition dynamics:
  - Anticipation → immediate increase in income and wealth → sizeable increase in private domestic demand that precedes productivity realizations (consumption smoothing by OLG households).
  - Two competing inflation effects:
    - Gradual downward pressure on marginal cost and prices from productivity increases.
    - Immediate upward pressure on prices from increased aggregate demand — this dominates during transition.
  - Headline inflation increases modestly: just over 0.15 percentage points at peak in years 3–5.
  - Countercyclical monetary policy raises real interest rates by around 20 basis points at peak and appreciates real exchange rate on impact.
  - Trade balance records a deficit during a lengthy transition.
  - Long run: real effective exchange rate depreciates to permanently increase external demand for increased U.S. output.
- Financial sector comparison:
  - Differences between GIMF-BGG and GIMF-BANKS are small.
  - Banks make lending profits, improve capital-adequacy ratio, and lower wholesale lending spread (effect on latter very small: 2 basis points on impact).
  - Movement in external financing spread partly offsets spread changes → GDP behavior indistinguishable between models.

### Permanent drop in wage markups (five percentage points)
- Shock:
  - Permanent increase in degree of U.S. labor market competition reducing wage markup by five percentage points.
- Effects:
  - Firms increase hiring and investment.
  - Permanent increase in production → aggregate income and wealth rise → higher consumption.
  - Long-run: real GDP increases by almost 1.5 percent.
  - Mild disinflationary pressures; mild drop in policy and real interest rates → stimulates additional output gains and real exchange rate depreciation.
  - Real exchange rate remains depreciated in long run to boost external demand.
- Financial sector comparison:
  - Differences between GIMF-BGG and GIMF-BANKS are small.

### Permanent drop in price markups (five percentage points)
- Shock:
  - Permanent increase in goods market competition reducing price markup over marginal cost in tradable and nontradable goods sectors by five percentage points.
- Effects:
  - Firms increase hiring and investment.
  - Permanent increase in production → aggregate income and wealth rise → higher consumption.
  - Long-run: real GDP rises by more than 5 percent.
  - Along adjustment path overall CPI inflation rises by almost 0.4 percentage points despite downward pressure from reduced markups (demand effects and investment surge dominate initially).
  - Policy and real interest rates rise in response to higher inflation.
  - Real exchange rate depreciates in long run to increase external demand.
- Financial sector comparison:
  - Differences between GIMF-BGG and GIMF-BANKS are small.
  - Shock effects on financial sector are expansionary driven by inflation behavior.

### Permanent increase in tariffs (ten percentage points on imports from all other regions)
- Shock:
  - Permanent, ten percentage point increase in U.S. tariffs on imports from all other regions.
- Effects:
  - GDP permanently decreases by around 1 percent (most drop in first two years).
  - Private investment declines by 2 percent in short run, and by around 1.5 percent in long run.
  - Consumption increases strongly due to additional income from tariffs distributed via permanently higher general transfers:
    - LIQ consumption increases due to higher incomes.
    - OLG consumption increases due to higher wealth.
    - Long-run increase in consumption: around 0.7 percent.
  - Headline inflation increases only marginally in short run because a large nominal appreciation offsets higher import prices.
  - Import volumes decline (higher relative price of imports).
  - Real appreciation reduces foreign demand for U.S. exports → trade balance approximately in balance and desired level of net foreign assets maintained.
- Financial sector comparison:
  - Differences between GIMF-BGG and GIMF-BANKS are small.
  - On impact banks make small losses but replace lost equity fairly quickly.
  - Beyond first two years bank capital-adequacy ratios improve and wholesale lending spreads are reduced.

---

### VI.  Properties of Financial Sector Shocks

### A. Temporary increase in borrower riskiness — equal impact effect on external financing spread
- Shock specification:
  - Shock sizes chosen so external financing spreads increase by 1 percentage point (100 basis points) on impact in both GIMF-BGG and GIMF-BANKS.
- Macro effects (both models):
  - Higher external financing spreads → reduce investment and capital stock.
  - Loss in household income and wealth → depresses consumption despite reduction in real risk-free rate (monetary authority response).
  - Trade balance improves modestly; real GDP declines.
- Key differences (GIMF-BGG vs GIMF-BANKS):
  - In GIMF-BANKS:
    - Much higher loan defaults → sizeable lending losses → average capital adequacy ratio falls by 2 percentage points: from 10.5 percent to 8.5 percent.
    - Many banks violate or approach MCAR of 8 percent → rush to rebuild equity → wholesale lending spread rises by over 70 basis points on impact.
    - Real lending rate increases by additional 70 basis points (given normalized external financing spread increase of 100 basis points).
    - Loans drop almost 3 percent on impact.
    - Real economy effects roughly twice as large as in GIMF-BGG: GDP, consumption, and investment contract about twice as much.
  - In GIMF-BGG:
    - Smooth and modest decrease in loans; smaller real effects.

- Mechanism behind loan losses (from Figure 17 discussion):
  - Loan losses mainly driven by decrease in banks’ income from lending q_{t-1} β_{k,t-1} r^e_{k,t} γ_t, accounting for nearly 100 percent of loan losses.
  - Increase in borrower riskiness changes distribution over borrower productivity levels → raises defaults at existing cutoff productivity level ω̄_t → reduces banks’ share γ_t in financial return to capital.
  - Normally γ_t would rise when financial return falls, offsetting losses; when borrower risk changes, this offset does not occur → large loan losses and capital-adequacy deterioration.

### A.2 Temporary increase in borrower riskiness — equal size of shock to borrower riskiness
- Shock specification:
  - Shock size equalized across models (equal to shock in GIMF-BGG from prior simulation).
- Results:
  - Impulse responses for GIMF-BGG identical to previous case.
  - Differences between models much smaller than in equal-impact case.
- Reason:
  - In GIMF-BANKS wholesale lending spread rises almost 50 basis points on impact → reduces corporate borrower leverage and bank loans drop more.
  - Larger drop in bank loans leads to significantly lower external financing spread, offsetting higher wholesale lending spread.
  - Offsets are incomplete → differences in overall lending rates and real effects remain but are far smaller.
  - The large differences in Figure 16 were driven mainly by larger shock sizes required in GIMF-BANKS to generate identical external financing spreads.

### B. Shocks to macroprudential policy settings in GIMF-BANKS

#### B.1 Fixed versus countercyclical MCAR (minimum capital-adequacy ratio)
- Shock:
  - External financing spread shock of 100 basis points on impact.
  - Fixed MCAR: MCAR held constant at 8 percent of total assets.
  - Countercyclical MCAR: MCAR = 8 percent + feedback term increasing in percentage deviation of loans from initial value (regulator lowers MCAR when lending volume falls).
- Outcomes:
  - With fixed MCAR:
    - Actual capital-adequacy ratio drops around 2 percentage points on impact → many banks near penalty → wholesale lending spread spikes ~70 basis points as banks rebuild equity.
    - Combined with increased external financing spread → steep initial contraction of investment and GDP.
  - With countercyclical MCAR:
    - Regulator temporarily lowers MCAR in response to reduced lending → banks can rebuild equity over time rather than immediately.
    - Wholesale lending spread increases far less; external financing spread similar to fixed-MCAR case.
    - Overall lending rates increase much less → impact effect of shock roughly half as large as under fixed MCAR and then smoothed over time.
- Policy insight:
  - GIMF-BANKS yields lessons on macroprudential design (role of countercyclical MCAR) not available in GIMF-BGG.

#### B.2 Immediate versus gradual increase in MCAR (fixed component)
- Shock:
  - MCAR permanently raised from 8 percent to 10 percent of total assets.
  - Immediate implementation versus linear increase over five years.
- Immediate increase:
  - Previously well-capitalized banks suddenly near/below new MCAR → rush to build equity → wholesale lending spread rises almost 90 basis points on impact.
  - Higher spread + drop in lending volume makes borrowers less creditworthy → external financing spread increases by just over 10 basis points.
  - Total lending spreads increase ~100 basis points, partially buffered by 20 basis points reduction in policy rate.
  - GDP contracts ~0.3 percent on impact; long-run contraction ~0.1 percent.
  - Faster attainment of higher capital ratio comes at cost of slightly more volatile output.
- Gradual increase (five years):
  - Smoother equity build-up → wholesale lending spread increases more modestly without spike on impact.
  - External financing spread barely increases on impact and then declines.
  - Real lending rates and real economy behave much smoother.
- Long-run effects of higher MCAR:
  - Wholesale lending spread increases by 8 basis points (banks must accumulate additional earnings).
  - Long-run bank loans volume permanently lower by around 0.5 percent → permanently lower borrower leverage.
  - External financing spread permanently lower by 2 basis points (partly offsets wholesale spread increase).
  - Final effect on real GDP: approximately 0.1 percent contraction.

---

### VII.  Conclusion — main results summarized
- For standard fiscal, demand and supply shocks:
  - Properties of GIMF-BGG and GIMF-BANKS are very similar.
  - Reason: for a given distribution over borrower productivity levels (no financial shocks), banks’ net loan losses remain small.
- For financial shocks (when distribution over borrower productivity levels changes):
  - Notable differences between GIMF-BGG and GIMF-BANKS arise.
  - Example: contractionary shock to borrower riskiness leads to loan losses and deterioration in regulatory capital-adequacy ratios in GIMF-BANKS → banks increase lending spreads for all borrowers → larger real effects. This mechanism is absent in GIMF-BGG.
- GIMF-BANKS allows analysis of macroprudential policy instruments (MCAR) absent in GIMF-BGG, generating additional policy insights.

*Source: _wp15150 - 1.   Permanent Increase in the Level of Productivity*

### REFERENCES

### _wp15150 - REFERENCES

### References (selected)
- Anderson, D., Hunt, B., Kortelainen, M., Kumhof, M., Laxton, D., Muir, D., Mursula, S. and Snudden, S. (2013), “Getting to Know GIMF: The Simulation Properties of the Global Integrated Monetary and Fiscal Model”, IMF Working Paper Series, WP/13/55, available at http://www.imf.org/external/pubs/cat/longres.aspx?sk=40357.0.
- Angeloni, I. and Faia, E. (2009), “A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks”, IMF The Kiel Institute for the World Economy Working Paper Series, No. 1569.
- Benes, J. and Kumhof, M. (2011), “Risky Bank Lending and Optimal Capital Adequacy Regulation”, IMF Working Paper Series, WP/11/130, available at http://www.imf.org/external/pubs/cat/longres.aspx?sk=24900.0.
- Bernanke, B.S., Gertler, M. and Gilchrist, S. (1999), “The Financial Accelerator in a Quantitative Business Cycle Framework”, in: John B. Taylor and Michael Woodford, eds., Handbook of Macroeconomics, Volume 1C. Amsterdam: Elsevier.
- Blanchard, O.J. (1985), “Debt, Deficits, and Finite Horizons”, Journal of Political Economy, 93, 223-247.
- Christiano, L., Motto, R. and Rostagno, M. (2010), “Financial Factors in Economic Fluctuations”, ECB Working Paper Series, No. 1192.
- Christiano, L., Motto, R. and Rostagno, M. (2014), “Risk Shocks”, American Economic Review, 104(1), 27-65.
- Coenen, G., C. Erceg, C. Freedman, D. Furceri, M. Kumhof, R. Lalonde, D. Laxton, J. Lindé, A. Mourougane, D. Muir, S. Mursula, J. Roberts, W. Roeger, C. de Resende, S. Snudden, M. Trabandt, J. in‘t Veld (2012), “Effects of Fiscal Stimulus in Structural Models”, American Economic Journal: Macroeconomics, 4(1), 22-68.
- Curdia, V. and Woodford, M. (2010), “Credit Spreads and Monetary Policy, Journal of Money, Credit, and Banking, 24(6), 3-35.
- Fecht, F., Grüner, H.P. and Hartmann, P. (2012), “Financial Integration, specialization, and systemic risk”, Journal of International Economics, 88, 150-161.
- Gerali, A., Neri, S., Sessa, L. and Signoretti, E. (2010), “A Tale of Credit and Banking in a DSGE Model of the Euro Area”, Bank of Italy Working Paper Series, No. 740.
- Gertler, M. and Karadi, P. (2011), “A Model of Unconventional Monetary Policy, Journal of Monetary Economics, 58, 17-34.
- Goodhart, Ch.A.E., Kashyap, A.K., Tsomocos, D.P. and A.P. Vardoulakis (2012), “Financial Regulation in General Equilibrium”, NBER Working Paper Series, WP 17909, available at http://www.nber.org/papers/w17909.pdf.
- Guerrieri, L. and Iacoviello, M. (2013), “Collateral Constraints and Macroeconomic Asymmetries”, International Finance Discussion Papers No.1082, Board of Governors of the Federal Reserve System.
- Kashyap, A.K., Berner, R. and Ch.A.E. Goodhart (2011), “The Macroprudential Toolkit”, IMF Economic Review, 59(2), 145-161.
- Kollmann, R. (2013), “Global Banks, Financial Shocks, and International Business Cycles: Evidence from an Estimated Model, Journal of Money, Credit, and Banking, 45(2), 159-195.
- Kumhof, M. and D. Laxton (2007), “A Party Without a Hangover? On the Effects of U.S. Fiscal Deficits”, IMF Working Paper Series, WP/07/202, available at http://www.imf.org/external/pubs/ft/wp/2007/wp07202.pdf.
- Kumhof, M. and D. Laxton (2013), “Fiscal Deficits and Current Account Deficits,” Journal of Economic Dynamics and Control, 37(10), 2062-2082.
- Kumhof, M., D. Laxton, D. Muir and S. Mursula (2010), “The Global Integrated Monetary Fiscal Model (GIMF) - Theoretical Structure”, IMF Working Paper Series, WP/10/34, available at http://www.imf.org/external/pubs/cat/longres.cfm?sk=23615.0.
- Milne, A. (2002), “Bank Capital Regulation as an Incentive Mechanism: Implications for Portfolio Choice”, Journal of Banking and Finance, 26(1), 1–23.

### Figures and Simulation Scenarios (captions and key axis measures)
- Figure 1. Temporary Stimulus Through Government Consumption (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown (examples of axes/units preserved): Real GDP (% Difference); Real Private Consumption (% Difference); Real Private Investment (% Difference); Trade Balance/GDP (%age Point Difference); Headline Inflation (%age Point Difference); Real Eff. Exchange Rate (% Difference; + = Depreciation); Nominal Policy Rate (%age Point Difference); Real S-T Interest Rate (%age Point Difference); Bank Loans (% Difference); Basel III Cap. Adequacy (%age Point Difference); External Financing Spread (%age Point Difference); Regulatory Lending Spread (%age Point Difference).

- Figure 2. Temporary Stimulus Through Government Investment (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown (axes/units): Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 3. Temporary Stimulus Through Government Consumption - Bank Loan Losses
  - Bank loan loss related series with axis labels preserved (e.g., Λ` t gdp, Λ` t  ̄`); percent or percentage point differences over 0–10 years.

- Figure 4. Temporary Stimulus Through Targeted Transfers (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 5. Temporary Stimulus Through General Transfers (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 6. Temporary Stimulus Through Lower Consumption Taxes (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; CPI Inflation excl. Indirect Taxes (%age Point Difference); Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 7. Temporary Stimulus Through Lower Labor Income Taxes (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 8. Temporary Stimulus Through Lower Capital Income Taxes (1pc of GDP for 2 years)
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 9. Temporary Increase in the Policy Rate
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 10. Temporary Increase in Private Domestic Demand
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 11. Permanent Increase in Labor Productivity
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 12. Ten-Year Increase in Labor Productivity Growth
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 13. Permanent Drop in Wage Markup
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 14. Permanent Drop in Price Markup
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 15. Permanent Increase in Tariffs
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 16. Temporary Increase in Borrower Riskiness - Equal External Financing Spreads
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 17. Temporary Increase in Borrower Riskiness - Bank Loan Losses
  - Bank loan loss related series with axis labels preserved; percent or percentage point differences over 0–10 years for variables such as Λ` t gdp, r `,t, q t−1 ˇ k t−1, γ t gdp, and related series.

- Figure 18. Temporary Increase in Borrower Riskiness - Equal Shock Sizes
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = GIMF-Banks, _ _ = GIMF-BGG
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 19. Fixed versus Countercyclical MCAR
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = Fixed MCAR, _ _ = Countercyclical MCAR
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

- Figure 20. Immediate versus Gradual Increase in MCAR
  - Percent or percentage point deviation from steady-state baseline (Horizontal axis is in years)
  - Series: ___ = Immediate, _ _ = Gradual (5 Years)
  - Variables shown include Real GDP; Real Private Consumption; Real Private Investment; Trade Balance/GDP; Headline Inflation; Real Eff. Exchange Rate; Nominal Policy Rate; Real S-T Interest Rate; Bank Loans; Basel III Cap. Adequacy; External Financing Spread; Regulatory Lending Spread.

*Source: _wp15150 - REFERENCES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp15150.pdf_