{
  "title": "Financial Crises in DSGE Models: Selected Applications of MAPMOD",
  "publication": "IMF Working Papers, April 4, 2014",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-crises-in-dsge-models-selected-applications-of-mapmod-41466",
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  "summary": "This paper, together with a technical companion paper, presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Paper presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions and to support macroprudential policy analysis.\n- In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy.\n- Excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis.\n- Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy.\n- These features allow the model to capture the basic facts of both the pre-crisis and crisis phases of financial cycles."
    },
    {
      "heading": "Key model features and mechanisms",
      "content": "- Bank loans as a source of purchasing power that affects real economic adjustments.\n- Loan quality and size affect bank balance sheets; excessive or risky lending can trigger balance-sheet impairment.\n- Bank reactions to losses include:\n  - Higher lending spreads.\n  - Rapid credit cutbacks.\n- Transmission from financial sector distress to real economy via reduced credit supply and higher financing costs."
    },
    {
      "heading": "Findings and implications",
      "content": "- MAPMOD captures basic facts of financial cycles, including distinct pre-crisis and crisis phases driven by credit dynamics.\n- The interplay between lending growth, loan riskiness, and bank balance-sheet health is central to crisis generation in the model.\n- Bank behavioral responses (spreads and cutbacks) amplify real economy downturns following financial-sector losses."
    },
    {
      "heading": "Policy relevance",
      "content": "- MAPMOD is designed to support macroprudential policy analysis by modeling vulnerabilities from excessive credit expansions.\n- The model highlights the importance of:\n  - Monitoring credit growth and loan risk characteristics.\n  - Policies that address bank balance-sheet vulnerabilities to limit amplification of shocks through spreads and credit supply contraction.\n- Implicitly supports the use of macroprudential tools aimed at preventing excessively large and risky lending booms.\n\n---\n\n Content in this bundle\n\n- wp1456 - References\n  - wp1456 - References (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1456 - References (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-crises-in-dsge-models-selected-applications-of-mapmod-41466"
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    "Authors: Jaromir Benes, Michael Kumhof, Douglas Laxton",
    "Published: April 4, 2014",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475540239.001",
    "Paper presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions and to support macroprudential policy analysis.",
    "In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy.",
    "Excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis.",
    "Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy.",
    "These features allow the model to capture the basic facts of both the pre-crisis and crisis phases of financial cycles.",
    "Bank loans as a source of purchasing power that affects real economic adjustments.",
    "Loan quality and size affect bank balance sheets; excessive or risky lending can trigger balance-sheet impairment.",
    "Bank reactions to losses include:",
    "Transmission from financial sector distress to real economy via reduced credit supply and higher financing costs.",
    "MAPMOD captures basic facts of financial cycles, including distinct pre-crisis and crisis phases driven by credit dynamics.",
    "The interplay between lending growth, loan riskiness, and bank balance-sheet health is central to crisis generation in the model.",
    "Bank behavioral responses (spreads and cutbacks) amplify real economy downturns following financial-sector losses.",
    "MAPMOD is designed to support macroprudential policy analysis by modeling vulnerabilities from excessive credit expansions.",
    "The model highlights the importance of:",
    "Implicitly supports the use of macroprudential tools aimed at preventing excessively large and risky lending booms.",
    "**_wp1456 - References**"
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