Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189937 
Year of Publication: 
2017
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 337
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
The 2008 financial crisis has shown that financial busts can influence the real economy. However, there is less evidence to suggest that the same holds for financial booms. Using a Markov-Switching vector autoregressive model and euro area data, I show that financial booms tend to be less procyclical than financial busts. To identify the sources of asymmetry, I estimate a non-linear DSGE model with a heterogeneous banking sector and an occasionally binding borrowing constraint. The model matches the key features of the data and shows that the borrowers' balance sheet channel accounts for the asymmetry in the macro-financial linkages. The muted macro-financial transmission during financial booms can be exploited for macroprudential policies. By comparing capital buffer rules with monetary policy "leaning-against- the-wind" rules, I find that countercyclical capital buffers improve welfare.
Subjects: 
Macro-financial linkages
non-linearities
Markov-Switching VAR
credit channel
occasionally binding constraints
DSGE
macroprudential policy
leaning-against-the-wind policy
JEL: 
E44
E58
E52
Document Type: 
Working Paper

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