{
  "title": "Capital Gaps, Risk Dynamics, and the Macroeconomy",
  "publication": "IMF Working Papers, September 25, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/09/25/capital-gaps-risk-dynamics-and-the-macroeconomy-49762",
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  "summary": "Motivated by the increasing interest in analyzing the links between the financial sector and the real economy, we develop a macro-financial structural model with two novel features. First, we include idiosyncratic and aggregate risk in a tractable general equilibrium model.",
  "authors": [
    "Fabian Lipinsky",
    "Mirela S. Miescu"
  ],
  "publishDate": "2020-09-25",
  "series": "IMF Working Papers",
  "sections": [
    {
      "heading": "Research focus and model features",
      "content": "- Authors: Fabian Lipinsky, Mirela S. Miescu\n- Date: September 25, 2020\n- Research objective: Develop a macro-financial structural model to analyze links between the financial sector and the real economy.\n- Two novel model features:\n  - Inclusion of idiosyncratic and aggregate risk in a tractable general equilibrium model to capture sectoral dynamics, probabilities of default of both firms and financial intermediaries, and the feedback between them.\n  - Introduction of sticky (observed) versus flexible (agents’ target) capital, defining capital gaps as the differences between realized and optimal values for firms and banks."
    },
    {
      "heading": "Key findings and mechanisms",
      "content": "- Capital gaps of firms and banks:\n  - Lead financial and business cycles.\n  - Cause gaps in credit spreads and asset prices.\n- Model applications:\n  - Can be used as a signaling device for macroprudential intervention.\n  - Can gauge whether macroprudential action was successful ex-post (for example, whether gaps were closed).\n- Empirical illustration:\n  - The analysis of gaps is applied to the U.S. economy using Bayesian estimation techniques."
    },
    {
      "heading": "Policy relevance and implications",
      "content": "- Macroprudential signaling:\n  - The model provides indicators (capital gaps, credit spread gaps, asset price gaps) that can inform the timing and design of macroprudential interventions.\n- Ex-post evaluation:\n  - The framework allows assessment of whether policy interventions closed observed capital gaps."
    },
    {
      "heading": "Subject classification and keywords",
      "content": "- Subject: Credit, Financial crises, Financial statements, Mutual funds, Nonbank financial institutions\n- Keywords: adjustment cost, capital gap, capital level, cash flow, FIs capital, risk shock, WP\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/09/25/capital-gaps-risk-dynamics-and-the-macroeconomy-49762"
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    "Authors: Fabian Lipinsky, Mirela S. Miescu",
    "Published: September 25, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513557786.001",
    "Authors: Fabian Lipinsky, Mirela S. Miescu",
    "Date: September 25, 2020",
    "Research objective: Develop a macro-financial structural model to analyze links between the financial sector and the real economy.",
    "Two novel model features:",
    "Capital gaps of firms and banks:",
    "Model applications:",
    "Empirical illustration:",
    "Macroprudential signaling:",
    "Ex-post evaluation:",
    "Subject: Credit, Financial crises, Financial statements, Mutual funds, Nonbank financial institutions",
    "Keywords: adjustment cost, capital gap, capital level, cash flow, FIs capital, risk shock, WP",
    "**Working Paper**"
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