April 19, 2024
OGR Partners Jaromir Benes, Tomas Motl and David Vavra developed the MESS (MacroEconomic Stress Scenario builder), a macroprudential modeling framework for practical application at policymaking institutions. Recently, their paper describing the model has been published in the Czech Journal of Economics and Finance.
The framework synthesizes the key insights from academic literature onfinancial cycles, interactions between the real economy and the financial system, andmacroprudential policy. It features an explicit description of gross quantities on thefinancial sector’s balance sheet and explicit concepts of demand and supply on the creditmarket. The key equations linking the real economy and the financial sector arenonlinear, making it possible to realistically examine the costs and benefits ofmacroprudential policy. The intended use of the model is for policymaking institutionsthat need a tool which is theoretically consistent, but also malleable and flexible enoughto be able to fit particular features of the economy and financial sector. The framework isalready in use by financial stability authorities in several countries, and now it's available in the academic literature as well.
Find and read the paper here: https://journal.fsv.cuni.cz/mag/article/show/id/1527
