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Discussion of "Aino 3.0 : Macroprudential Policies for a Small Open Economy"

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Abstract

Discussion of the paper "Aino 3.0 : Macroprudential policies for a small open economy" by Aino Silvo and Fabio Verona.
Intro ducti on
Comm ents
Conc lusion
Aino 3.0 : Macroprudential policies for a
small open economy
By Aino Silvo and Fabio Verona
Discussant: Jonathan Benchimol1
Macroeconomic Modelling and Model Comparison Network
CEPR Conference, Frankfurt
June 13, 2019
This pre sentat ion do es not ne cessaril y re‡ect the view s of the B ank of Isr ael
1Bank of Israel
Jonat han Be nchim ol Bank o f Israel
Intro ducti on
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Conc lusion
Mod el
Motiv ations
Mess age
Environment
IeAino: large scale SOE DSGE model.
IAino 2: credit and banking SOE DSGE model.
IAino 3: dad, could I become an economist if I am bad in
math?
IAino 17: grandpa, climate changes removed electricity I
cannot run Dynare.
IAino 18 under Python/Julia would solve that !
2 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Environment
IeAino: large scale SOE DSGE model.
IAino 2: credit and banking SOE DSGE model.
IAino 3: dad, could I become an economist if I am bad in
math?
IAino 17: grandpa, climate changes removed electricity I
cannot run Dynare.
IAino 18 under Python/Julia would solve that !
2 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Environment
IeAino: large scale SOE DSGE model.
IAino 2: credit and banking SOE DSGE model.
IAino 3: dad, could I become an economist if I am bad in
math?
IAino 17: grandpa, climate changes removed electricity I
cannot run Dynare.
IAino 18 under Python/Julia would solve that !
2 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Environment
IeAino: large scale SOE DSGE model.
IAino 2: credit and banking SOE DSGE model.
IAino 3: dad, could I become an economist if I am bad in
math?
IAino 17: grandpa, climate changes removed electricity I
cannot run Dynare.
IAino 18 under Python/Julia would solve that !
2 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Environment
IeAino: large scale SOE DSGE model.
IAino 2: credit and banking SOE DSGE model.
IAino 3: dad, could I become an economist if I am bad in
math?
IAino 17: grandpa, climate changes removed electricity I
cannot run Dynare.
IAino 18 under Python/Julia would solve that !
2 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Overview of CB DSGE models before the GFC?
IECB: NAWM - Smets and Wouters (2003); Christo¤el et al. (2008)
IBank of Finland: Aino - Kilponen et al. (2004)
IIMF: GEM - Bayoumi (2004)
IFRB: SIGMA - Erceg et al. (2005)
IBoE: BEQM - Harrison et al. (2005); Harrison and Oomen (2010)
ICNB: New Model or G3 - Benes et al. (2005)
IIMF: GFM - Botman et al. (2006)
IBank of Canada: ToTEM - Murchison and Rennison (2006)
INorges Bank: NEMO - Brubakk and Sveen (2009)
IBank of Spain: BEMOD - Andrés et al. (2006)
IBank of Chile: MAS - Medina and Soto (2006)
IIMF: GIFM - Kumhof et al. (2010)
IRiksbank: RAMSES - Adolfson et al. (2007)
IBank of Thailand Tanboon (2008)
ISNB: DSGE-CH - Cuche-Curti et al. (2009)
IEC: QUEST - Ratto and Röger (2005); Ratto et al. (2009) 3 / 16
Intro ducti on
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Conc lusion
Mod el
Motiv ations
Mess age
...and they all predicted the crisis
IDebate about DSGE models...
IA lot of critics against DSGE models
IDisgusting Solution for a Global Explanation
IOf course I am joking ! They failed for some points, but
managed for others.
ILet’s start thinking...
4 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
...and they all predicted the crisis
IDebate about DSGE models...
IA lot of critics against DSGE models
IDisgusting Solution for a Global Explanation
IOf course I am joking ! They failed for some points, but
managed for others.
ILet’s start thinking...
4 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
...and they all predicted the crisis
IDebate about DSGE models...
IA lot of critics against DSGE models
IDisgusting Solution for a Global Explanation
IOf course I am joking ! They failed for some points, but
managed for others.
ILet’s start thinking...
4 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
...and they all predicted the crisis
IDebate about DSGE models...
IA lot of critics against DSGE models
IDisgusting Solution for a Global Explanation
IOf course I am joking ! They failed for some points, but
managed for others.
ILet’s start thinking...
4 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
...and they all predicted the crisis
IDebate about DSGE models...
IA lot of critics against DSGE models
IDisgusting Solution for a Global Explanation
IOf course I am joking ! They failed for some points, but
managed for others.
ILet’s start thinking...
4 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Overview of CB DSGE models after the GFC? (1)
IBank of Peru: MEGA-D - Castillo et al. (2009)
IBank of Brasil: SAMBA - Gouvea et al. (2008); De Castro et al.
(2011)
IBank of Colombia: PATACON - González et al. (2011)
IRBA Jääskelä and Nimark (2008)
IBank of Portugal: PESSOA - Almeida et al. (2008, 2013)
ISARB Steinbach et al. (2009); Du Plessis et al. (2014)
IRBNZ: KITT - Lees (2009)
IBank of Spain: MEDEA - Burriel et al. (2010)
IBank of Luxembourg: LOLA - Pierrard and Sneessens (2009);
Marchiori and Pierrard (2012)
IBank of Philippines McNelis and Glindro (2009)
IFed: EDO - Chung et al. (2010)
IBoJ: M-JEM - Fueki et al. (2010)
IBank of Iceland Seneca (2010)
5 / 16
Intro ducti on
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Conc lusion
Mod el
Motiv ations
Mess age
Overview of CB DSGE models after the GFC? (2)
IECB: EAGLE - Gomes et al. (2010)
IChicago Fed Brave et al. (2012)
IBank of Israel: MOISE - Argov et al. (2012)
IBank of Spain and Bundesbank: FiMOD - Stähler and Thomas
(2012)
INew York Fed Del Negro et al. (2013)
IRBNZ: NZSIM - Kamber et al. (2015)
IBank of Finland: Aino 2.0 - Kilponen et al. (2016)
I...a lot of other CB DSGE models
IBank of Finland: Aino 3.0 - Silvo and Verona (2019)
6 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What is a model ?
A theoretical (hypothetical) construct that represents a process by
a number of variables and a set of quantitative, or logical,
relationships between them.
Jennifer Ann Francis (Physicist)
A simplistic theoretical and/or empirical method explaining
complicated processes.
Peter James Richerson (Biologist)
The best way to explain some workings of the economy, and
wrongly describe the others.
Unknown Economist
7 / 16
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Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What are the objectives ?
IProvides an explanation (story) about a speci…c state.
IDetermines what might happen
Iin di¤erent scenarios.
Iat future dates.
IPrescribes new (economic) guidelines that will change future
(economic) behaviors.
IAssists decision making processes: trading, investment,
planning, resource allocations, economic policy etc.
IProvides logical defense to justify (economic) policies:
national/political, organizational, household, etc.
8 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Why Aino 3.0 ?
IMacro Prudential
IPolicy
ISupervision
I(Structural) Macro Prudential and Monetary policy
interactions.
IResearch or Policy?
9 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Why Aino 3.0 ?
IMacro Prudential
IPolicy
ISupervision
I(Structural) Macro Prudential and Monetary policy
interactions.
IResearch or Policy?
9 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Why Aino 3.0 ?
IMacro Prudential
IPolicy
ISupervision
I(Structural) Macro Prudential and Monetary policy
interactions.
IResearch or Policy?
9 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Why Aino 3.0 ?
IMacro Prudential
IPolicy
ISupervision
I(Structural) Macro Prudential and Monetary policy
interactions.
IResearch or Policy?
9 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
Why Aino 3.0 ?
IMacro Prudential
IPolicy
ISupervision
I(Structural) Macro Prudential and Monetary policy
interactions.
IResearch or Policy?
9 / 16
Intro ducti on
Comm ents
Conc lusion
Mod el
Motiv ations
Mess age
What is the message ?
ISimulate several macroprudential policies.
IProvide a story about macro prudential developments.
IMy message: we need this.
10 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Equity market
IDoes the …scal authority more important than the equity
market?
IThe risk macroprudential policy tends to avoid necessarily
in‡uences the equity market.
IThe foreign equity market is of utmost importance for a SOE.
11 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Equity market
IDoes the …scal authority more important than the equity
market?
IThe risk macroprudential policy tends to avoid necessarily
in‡uences the equity market.
IThe foreign equity market is of utmost importance for a SOE.
11 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Equity market
IDoes the …scal authority more important than the equity
market?
IThe risk macroprudential policy tends to avoid necessarily
in‡uences the equity market.
IThe foreign equity market is of utmost importance for a SOE.
11 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Policy making
IWhich governor will decide based on simulations ?
IEven if estimated (and it should be estimated):
IThe domestic CB interest rate is determined through bank
pro…ts.
IBut I never received any shekel/euro from my deposit account.
IDoes exogenous interest rate means the ECB does not target
in‡ation or output gaps ?
IMost of the …nancial dynamics a not linear, especially around
a crisis.
12 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
Equity m arket
Centr al bank
Risk su pervi sion
Macroprudential risks only?
IOperational risks, digital currency risks, political risks etc...
IShould all risks have to be analyzed through the lens of a
DSGE model?
IOne DSGE model for one risk?
IAre macroprudential risks only a "housing" story?
IEconometric risks ? Pagan’s presentation of today for instance
IClimate or commodity risk could be more impactful than
macroprudential risk for Finland in the future.
13 / 16
Intro ducti on
Comm ents
Conc lusion
What about the paper?
IThis model is
Irich.
Iimportant.
Irecommended to (CB) economists.
IThe model is clear and justi…ed through a structural
framework.
IThis paper opens several ways of improvement and further
(CB) research.
14 / 16
Intro ducti on
Comm ents
Conc lusion
Further research
IAlthough an interesting calibration exercise is presented, the
reader wants to know how this model …ts real data.
IDoes the current model suitable for monitoring welfare?
ISupervision, Policy recommendation, Macroprudential
monitoring...
15 / 16
Intro ducti on
Comm ents
Conc lusion
Thanks
IThank you for your attention.
IEmail : jonathan@benchimol.name
IWebsite : JonathanBenchimol.com
16 / 16
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