[PPT] - Jaromir Benes, Ondra Kamenik, Michael Kumhof, Douglas Laxton, Dirk PowerPoint Presentation

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The Global Integrated Monetary and Fiscal Model: Introduction and Applications with Stronger Macro-Financial Linkages

Jaromir Benes, Ondra Kamenik, Michael Kumhof, Douglas Laxton, Dirk Muir, and Susanna Mursula

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The Global Integrated Monetary and Fiscal Model: Introduction and Applications with Stronger Macro-Financial Linkages Jaromir Benes Ondra Kamenik Michael Kumhof Douglas Laxton Dirk Muir Susanna Mursula IMF Research Department Macro Modelling Workshop - January 7th, 2009

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Outline of the Presentation

1. High Level Overview of the GIMF
2. Modelling Macro-Financial Linkages - BGG
3. New Model Properties

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High Level Overview of the GIMF GIMF is the Global Integrated Monetary and Fiscal model. Uses a Blanchard-Weil-Buiter overlapping generations framework to incor- porate both scal and monetary policy, in a multi-country setting.

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GIMF as a Policy Tool Monetary policy = ination targeting, nominal exchange rate targeting. { Other targeting regimes are possible. Fiscal policy = debt targeting; decit targeting; tax rates available on labour and capital income; value added tax on consumption. { tax smoothing. Monetary and scal policy can be examined in a rich economic framework.

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Economic Structure of the GIMF Agents face a consumption-leisure choice { agents can be forward looking

r liquidity constrained.

{ subject to their budget constraint { forward-looking consumers hold gov- ernment debt and net foreign assets. Net foreign assets are internationally-traded bonds, denominated in a single numeraire currency = ) incomplete markets. { U.S. dollar serves as numeraire in most applications of GIMF.

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Production Firms are monopolistically competitive. Production is multilayered. { factors of production are combined to produce intermediate tradable and nontradable goods. { intermediate goods are combined to produce nal consumption and in- vestment goods.

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International Features some intermediate goods and all nal goods are tradable internationally. the model tracks bilateral trade ows in all goods. there can be country risk premia (relative to a numeraire country, such as the United States).

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Other Features GIMF can be used at either an annual or quarterly frequency. nominal price stickiness; nominal wage stickiness. more features will be described, in detail, thoughout the day. This presentation illustrates a new development in the GIMF model - macro- nancial linkages.

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Macro-Financial Linkages in the GIMF We have introduced a nancial sector into GIMF, focusing on the demand side of credit, modelled on: { Bernanke, Gertler and Gilchrist (1999) { the nancial accelerator. { Christiano, Motto, and Rostagno (2003) { their representation of the banking sector.

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What is the Financial Accelerator? Introduce an endogenous risk premium to the cost of nancing by rms, relative to the risk-free interest rate. { There are information asymmetries between lenders and borrowers that lead to increased monitoring costs, and extra costs to projects nanced by funds external to the rm. Firms, producing tradable and non-tradable goods, are risk neutral and have nite expected lifetimes. They borrow from nancial intermediaries to nance a fraction of their capital acquisitions.

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What is the Financial Accelerator? (cont'd) Information asymmetry and costly state verication mean nancial inter- mediaries charge an external nancing premium to rms, which is inversely related to the rms' degree of leverage. { Leverage = ratio of corporate debt to a rm's net worth. Financial intermediaries, aside from their auditing function, serve only as a conduit between households and rms { solely taking deposits and making loans. = ) Negative shocks to the economy, which can decrease rms' cash ow and net worth, raising premia on external nancing.

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BGG in the Context of a Macroeconomic Model The BGG nancial accelerator is often formulated and solved in a partial equilibrium setting, so that a linearized version of the resulting rm maxi- mization problem can be introduced into a larger model of the economy. With GIMF, we have incorporated the fully non-linear representation of the BGG nancial accelerator. { there are some modications, but the underlying stories we tell with our nancial accelerator are fundamentally the same as BGG.

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Advantages of the Nonlinear Representation No longer conned to having only a negative relationship between leverage and the external nancing premium (predicated on some arbitrary functional form). If we can solve the full nonlinear model, the response of the nancial sector is more extreme in the presence of higher leverage. { for example, an economy with a leverage ratio of 100% reacts more strongly (proportionately) to negative shocks than an economy with 50% leverage.

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Advantages of the Nonlinear Representation (cont'd) We have richer stories that we can tell about: { the cost of rms' bankruptcies to nancial intermediaries. { the probability of bankruptcy of rms at any point in time. { the level of the external nancing premium, which is inverse to the rms' leverage. { the equity premium required by investors.

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Disadvantages of the Nonlinear Representation the full nonlinear representation is very dicult to solve for shocks of the magnitude that interest us.

ne solution { numeric linearization of the entire model around a steady

state. { lose the nonlinear response of the model to leverage and some other variables. { retain the full menu of features (i.e. bankruptcy costs, probability of bankruptcy).

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Properties of the New Financial Sector in the GIMF Look at the GIMF with BGG, in a two-country context { Canada and the United States. { Canada is 6.5% of GDP, while the United States is 93.5%. { Trade ows for Canada are decent { 80% of exports go to, and 55% of imports come from, the United States. { Under 20% of U.S. trade is accounted for { roughly 15% of exports go to, and 20% of imports come from, Canada.

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Properties of the New Financial Sector (cont'd) We will consider shocks that hit the United States, and discuss their eects

ver the rst 4 years.

We will then look at the eects in Canada, and any exacerbation of the eects by the new nancial sector.

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A Temporary Increase in the Corporate Risk Premium There is a temporary, but persistent, 25 basis point increase in the spread between { the private corporate interest rate; { the public interest rate (which is both the policy rate, and the rate of return on domestic government debt).

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United States - Financial Sector For rms, the increase in the spread leads to a higher cost for loans { drives down net worth, increases leverage. Also drives down investment by roughly 1% { reinforces fall in net worth. As leverage increases from 100% to 102.5% (economy wide), there is an increase of the external nance premium of around 14 bp. Probability of bankruptcies increase by almost 0.2%age pts.

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U n i t e d S t a t e s : I n c r e a s e i n t h e E x

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E x t e r n a l F i n a n c e P r e m i u m ( e x a n t e )

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United States - Overall GDP falls overall by 0.2% { weaker investment, lower consumer wealth as rms deteriorate. Monetary policy can try to oset this { fall in policy rate of 25bp by year 2; but still cannot prevent nancial diculties. Mild depreciation leads to very small improvement in current account.

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U n i t e d S t a t e s : I n c r e a s e i n t h e E x

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Spillovers in Canada - Overall Exchange rate appreciates, slight deterioration of the trade balance. Leads to fall in ination, rise in real interest rate, undone by monetary policy with a slight delay, since it is an unanticipated surprise. Higher real interest rate leads to fall in investment by 0.7%.

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Canada: Increase in the Exogenous Private / Public Interest Rate Spread in the United States

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Spillovers in Canada - Financial Sector Financial sector exacerbates this, with same channels as in the United States. This is a common theme in all shocks { the nancial accelerator magnies the spillover eects in Canada. There would still be negative spillovers in Canada, but they are accelerated by the BGG mechanism. External nance premium increases by roughly 10 bp; probability of bank- ruptcy up by roughly 0.15% economy-wide.

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Canada: Increase in the Exogenous Private / Public Interest Rate Spread in the United States

Tradables __ and Nontradables - -

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Canada - Decomposing the Eects of the Financial Sector The following graphs show the Canadian response with and without the nancial sector based on the BGG nancial accelerator. The lack of an external nancing premium means investment would be much stronger. { monetary policy would be more eective in undoing the spillovers of the shock from the United States.

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Increase in the Exogenous Private / Public Interest Rate Spread in the United States

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A Temporary Increase in the Cost of Firm Bankruptcies to Lenders When a rm goes bankrupt, a certain percentage of the rm's assets are irretrievably lost, resulting in a deadweight loss to the lender. We assume a temporary, but persistent, increase in that deadweight loss by all rms. { Could result from eects of regulations that reduce the retrievability of bankrupt rms' assets { for example, "mark to market" pricing in the subprime mortgage crisis. To show the nonlinear model, we consider only a very small shock { it is the relative magnitudes, not the absolute, that matter in the results.

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United States - Financial Sector The external nancing premium increases directly from the shock { drives a wedge between the private and corporate interest rates = ) increase in higher loan costs, drives down net worth, increases leverage. External nancing premium increase is reinforced by: { increase of leverage by.0.3 %age pts. { 0.1% fall in investment that reinforces fall in net worth.

) Increase in the probability of bankruptcy for rms.

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U n i t e d S t a t e s : T e m p

r

a r y B u t P e r s i s t e n t I n c r e a s e i n B a n k r u p t c y C

s

t s i n t h e U n i t e d S t a t e s

Tradables __ and Nontradables - -

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2 . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6

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2 . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 1 2 3 4

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United States - Overall GDP falls overall by 0.01% { weaker investment, lower consumer wealth as rms deteriorate. Monetary policy can try to oset this { fall in policy rate of 1bp by year 2; but still cannot prevent nancial diculties. Mild depreciation leads to very small improvement in current account.

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U n i t e d S t a t e s : T e m p

r

a r y B u t P e r s i s t e n t I n c r e a s e i n B a n k r u p t c y C

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t s i n t h e U n i t e d S t a t e s

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Spillovers in Canada Again, spillovers come mostly through the trade channel, that put downward pressure on the economy. Most important feature is the rise in the real interest rate, leading to a fall in investment. Here, again, the new nancial sector leads to a worsening of the situation in Canada { accelerator eect of higher corporate leverage. We will no longer consider the results in Canada { story is the same.

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C a n a d a : T e m p

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.

2 . . 2 . 4 . 6 1 2 3 4

Real Interest Rate: Government ___ and Private - -

( D i f f e r e n c e )

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2 1 2 3 4

T B / G D P _ _ , C A / G D P

(

D i f f e r e n c e )

.

1 5

.

1

.

5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3

.

1 5

.

1

.

5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3 1 2 3 4

R e a l E x c h a n g e R a t e

( % D i f f e r e n c e ; + = D e p r e c i a t i

n

)

SLIDE 38

C a n a d a : T e m p

r

a r y B u t P e r s i s t e n t I n c r e a s e i n B a n k r u p t c y C

s

t s i n t h e U n i t e d S t a t e s

T r a d a b l e s _ _ a n d N

n

t r a d a b l e s

.

1

.

5 . . 5 . 1 . 1 5 . 2 . 2 5

.

1

.

5 . . 5 . 1 . 1 5 . 2 . 2 5 1 2 3 4

F i n a n c i a l R e t u r n t

C

a p i t a l ( e x a n t e )

( D i f f e r e n c e )

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5 1 2 3 4

I n v e s t m e n t

( % D i f f e r e n c e )

.

8

.

7

.

6

.

5

.

4

.

3

.

2

.

1 . . 1

.

8

.

7

.

6

.

5

.

4

.

3

.

2

.

1 . . 1 1 2 3 4

C

r

p

r

a t e N e t W

r

t h

( % D i f f e r e n c e ) . . 1 . 2 . 3 . 4 . 5 . 6 . 7 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 1 2 3 4

C

r

p

r

a t e I n s

l

v e n c i e s ( e x a n t e )

( D i f f e r e n c e , i n %

f

a l l F i r m s ) . . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 1 2 3 4

C

r

p

r

a t e L e v e r a g e

( D i f f e r e n c e ) . . 5 . 1 . 1 5 . 2 . 2 5 . 3 . 3 5 . 4 . 4 5 . 5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3 . 3 5 . 4 . 4 5 . 5 1 2 3 4

E x t e r n a l F i n a n c e P r e m i u m ( e x a n t e )

( D i f f e r e n c e )

SLIDE 39

A Temporary Increase in the Probability of Corporate Bankruptcy In any given period, there is a probability of bankruptcy for each rm, which results in an average percentage of rms going bankrupt each quarter. We assume a temporary but persistent increase in the rate of bankruptcies (or, in other words, borrower riskiness).

SLIDE 40

United States - Financial Sector As probability of bankruptcy increases by 0.2%age pts, nancial intermedi- aries need to better monitor the risky rms, so they charge a higher external nance premium { drives down net worth, increases leverage. Also drives down investment by roughly 0.5% { reinforces fall in net worth. So leverage increases from by roughly 1.2% (economy wide). = overall, an increase of the external nance premium of around 15 bp.

SLIDE 41

U n i t e d S t a t e s : T e m p

r

a r y B u t P e r s i s t e n t I n c r e a s e i n B

r

r

w

e r R i s k i n e s s i n t h e U n i t e d S t a t e s

Tradables __ and Nontradables - -

.

1 . . 1 . 2 . 3 . 4 . 5 . 6 . 7

.

1 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 1 2 3 4

F i n a n c i a l R e t u r n t

C

a p i t a l ( e x a n t e )

( D i f f e r e n c e )

.

6

.

5

.

4

.

3

.

2

.

1

.

. 1

.

6

.

5

.

4

.

3

.

2

.

1

.

. 1 1 2 3 4

I n v e s t m e n t

( % D i f f e r e n c e )

1

. 4

1

. 2

1

.

.

8

.

6

.

4

.

2

.

. 2 . 4

1

. 4

1

. 2

1

.

.

8

.

6

.

4

.

2

.

. 2 . 4 1 2 3 4

C

r

p

r

a t e N e t W

r

t h

( % D i f f e r e n c e ) . . 5 . 1 . 1 5 . 2 . 2 5 . . 5 . 1 . 1 5 . 2 . 2 5 1 2 3 4

C

r

p

r

a t e I n s

l

v e n c i e s ( e x a n t e )

( D i f f e r e n c e , i n %

f

a l l F i r m s )

1

.

.

5 . . 5 1 . 1 . 5 2 .

1

.

.

5 . . 5 1 . 1 . 5 2 . 1 2 3 4

C

r

p

r

a t e L e v e r a g e

( D i f f e r e n c e ) . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 . 1 8 . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 . 1 8 1 2 3 4

E x t e r n a l F i n a n c e P r e m i u m ( e x a n t e )

( D i f f e r e n c e )

SLIDE 42

United States - Overall GDP falls overall by 0.05% { weaker investment, lower consumer wealth as rms deteriorate. Monetary policy can try to oset this { fall in policy rate of 25bp by year 2; but still cannot prevent nancial diculties. Mild depreciation leads to very small improvement in current account.

SLIDE 43

U n i t e d S t a t e s : T e m p

r

a r y B u t P e r s i s t e n t I n c r e a s e i n B

r

r

w

e r R i s k i n e s s i n t h e U n i t e d S t a t e s

.

1

.

8

.

6

.

4

.

2

.

. 2

.

1

.

8

.

6

.

4

.

2

.

. 2 1 2 3 4

G D P

( % D i f f e r e n c e )

.

6

.

5

.

4

.

3

.

2

.

1 . . 1 . 2

.

6

.

5

.

4

.

3

.

2

.

1 . . 1 . 2 1 2 3 4

N

m

i n a l P

l

i c y R a t e

( D i f f e r e n c e )

.

8

.

6

.

4

.

2 . . 2 . 4 . 6

.

8

.

6

.

4

.

2 . . 2 . 4 . 6 1 2 3 4

I n f l a t i

n

( D i f f e r e n c e )

.

4

.

3

.

2

.

1 . . 1 . 2 . 3

.

4

.

3

.

2

.

1 . . 1 . 2 . 3 1 2 3 4

Real Interest Rate: Government ___ and Private - -

( D i f f e r e n c e )

.

5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3

.

5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3 1 2 3 4

T B / G D P _ _ , C A / G D P

(

D i f f e r e n c e )

.

1 5

.

1

.

5 . . 5 . 1

.

1 5

.

1

.

5 . . 5 . 1 1 2 3 4

R e a l E x c h a n g e R a t e

( % D i f f e r e n c e ; + = D e p r e c i a t i

n

)

SLIDE 44

A Temporary Loss of Net Worth - Destruction of Firm Value Firms temporarily (but persistently) distribute a dividend to their sharehold- ers (consumers) that is higher than the steady-state level. The higher level of dividend gradually reduces the rm's net worth, increas- ing its reliance on borrowing.

SLIDE 45

United States - Financial Sector Increased distribution of dividends lowers rms' net worth by 2.5%, leading to higher leverage of 2.5 %age pts. = ) higher external nance premium (reinforced by lower investment = ) lower net worth) of roughly 13bp. Probability of bankruptcies increase by almost 0.2%age pts.

SLIDE 46

U n i t e d S t a t e s : T e m p

r

a r y D e c r e a s e i n N e t W

r

t h

D

i v i d e n d D i s t r i b u t i

n

i n t h e U n i t e d S t a t e s

Tradables __ and Nontradables - -

. . 1 . 2 . 3 . 4 . 5 . 6 . 7 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 1 2 3 4

F i n a n c i a l R e t u r n t

C

a p i t a l ( e x a n t e )

( D i f f e r e n c e )

1

. 6

1

. 4

1

. 2

1

.

.

8

.

6

.

4

.

2 . . 2

1

. 6

1

. 4

1

. 2

1

.

.

8

.

6

.

4

.

2 . . 2 1 2 3 4

I n v e s t m e n t

( % D i f f e r e n c e )

2

. 5

2

.

1

. 5

1

.

.

5 . . 5

2

. 5

2

.

1

. 5

1

.

.

5 . . 5 1 2 3 4

C

r

p

r

a t e N e t W

r

t h

( % D i f f e r e n c e ) . . 5 . 1 . 1 5 . 2 . 2 5 . . 5 . 1 . 1 5 . 2 . 2 5 1 2 3 4

C

r

p

r

a t e I n s

l

v e n c i e s ( e x a n t e )

( D i f f e r e n c e , i n %

f

a l l F i r m s ) . . 5 1 . 1 . 5 2 . 2 . 5 3 . . . 5 1 . 1 . 5 2 . 2 . 5 3 . 1 2 3 4

C

r

p

r

a t e L e v e r a g e

( D i f f e r e n c e ) . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 1 2 3 4

E x t e r n a l F i n a n c e P r e m i u m ( e x a n t e )

( D i f f e r e n c e )

SLIDE 47

United States - Overall GDP falls overall by 0.15% { weaker investment, lower consumer wealth as rms deteriorate. Monetary policy can try to oset this { fall in policy rate of 25bp by year 2; but still cannot prevent nancial diculties. Mild depreciation leads to very small improvement in current account.

SLIDE 48

U n i t e d S t a t e s : T e m p

r

a r y D e c r e a s e i n N e t W

r

t h

D

i v i d e n d D i s t r i b u t i

n

i n t h e U n i t e d S t a t e s

.

1 8

.

1 6

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2

.

1 8

.

1 6

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2 1 2 3 4

G D P

( % D i f f e r e n c e )

.

2 5

.

2

.

1 5

.

1

.

5 . . 5

.

2 5

.

2

.

1 5

.

1

.

5 . . 5 1 2 3 4

N

m

i n a l P

l

i c y R a t e

( D i f f e r e n c e )

.

3 5

.

3

.

2 5

.

2

.

1 5

.

1

.

5

.

. 5 . 1

.

3 5

.

3

.

2 5

.

2

.

1 5

.

1

.

5

.

. 5 . 1 1 2 3 4

I n f l a t i

n

( D i f f e r e n c e )

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5 1 2 3 4

Real Interest Rate: Government ___ and Private - -

( D i f f e r e n c e ) . . 5 . 1 . 1 5 . 2 . 2 5 . 3 . 3 5 . 4 . 4 5 . 5 . . 5 . 1 . 1 5 . 2 . 2 5 . 3 . 3 5 . 4 . 4 5 . 5 1 2 3 4

T B / G D P _ _ , C A / G D P

(

D i f f e r e n c e )

.

2

.

1 . . 1 . 2 . 3 . 4 . 5

.

2

.

1 . . 1 . 2 . 3 . 4 . 5 1 2 3 4

R e a l E x c h a n g e R a t e

( % D i f f e r e n c e ; + = D e p r e c i a t i

n

)

SLIDE 49

A Temporary Loss of Net Worth - Capital Destruction In this case, net worth of the rms decline, because of a temporary but persistent increase in the rate of depreciation of capital by 0.8%age pts on an annual basis. This can thought of as a sudden obsolescence of capital stock. { example: the over-investment of the "high-tech bubble" of 1998-2000.

SLIDE 50

United States - Financial Sector As the capital stock falls rapidly, net worth falls with it, driving up corporate leverage nearly 2.5 %age pts. = ) Increase in the external nance premium of around 14 bp. Investment is actually falling in the short run, by 0.6%. { It begins rebounding in year 4, as there is a need to rebuild the capital stock to maintain the steady-state capital-output ratio. The probability of bankruptcies by rms increase by almost 0.2%age pts.

SLIDE 51

U n i t e d S t a t e s : T e m p

r

a r y D e c r e a s e i n N e t W

r

t h

C

a p i t a l D e s t r u c t i

n

i n t h e U n i t e d S t a t e s

Tradables __ and Nontradables - -

.

2

.

1 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8

.

2

.

1 . . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 1 2 3 4

F i n a n c i a l R e t u r n t

C

a p i t a l ( e x a n t e )

( D i f f e r e n c e )

.

8

.

6

.

4

.

2 . . 2 . 4

.

8

.

6

.

4

.

2 . . 2 . 4 1 2 3 4

I n v e s t m e n t

( % D i f f e r e n c e )

3

.

2

. 5

2

.

1

. 5

1

.

.

5 . . 5

3

.

2

. 5

2

.

1

. 5

1

.

.

5 . . 5 1 2 3 4

C

r

p

r

a t e N e t W

r

t h

( % D i f f e r e n c e ) . . 5 . 1 . 1 5 . 2 . 2 5 . . 5 . 1 . 1 5 . 2 . 2 5 1 2 3 4

C

r

p

r

a t e I n s

l

v e n c i e s ( e x a n t e )

( D i f f e r e n c e , i n %

f

a l l F i r m s ) . . 5 1 . 1 . 5 2 . 2 . 5 3 . 3 . 5 . . 5 1 . 1 . 5 2 . 2 . 5 3 . 3 . 5 1 2 3 4

C

r

p

r

a t e L e v e r a g e

( D i f f e r e n c e ) . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 . 1 8 . . 2 . 4 . 6 . 8 . 1 . 1 2 . 1 4 . 1 6 . 1 8 1 2 3 4

E x t e r n a l F i n a n c e P r e m i u m ( e x a n t e )

( D i f f e r e n c e )

SLIDE 52

United States - Overall GDP falls overall by 0.25% { weaker investment, lower consumer wealth as rms deteriorate. Monetary policy can try to oset this { fall in policy rate of 25bp during the second year; but still cannot prevent nancial diculties. { ination falling more rapidly in the short-run, leading to an increase in the real interest rate ) real exchange rate is appreciating { nonetheless, current account improves as investment falls more than savings.

SLIDE 53

U n i t e d S t a t e s : T e m p

r

a r y D e c r e a s e i n N e t W

r

t h

C

a p i t a l D e s t r u c t i

n

i n t h e U n i t e d S t a t e s

.

3

.

2 5

.

2

.

1 5

.

1

.

5

.

. 5

.

3

.

2 5

.

2

.

1 5

.

1

.

5

.

. 5 1 2 3 4

G D P

( % D i f f e r e n c e )

.

2 5

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5

.

2 5

.

2

.

1 5

.

1

.

5 . . 5 . 1 . 1 5 1 2 3 4

N

m

i n a l P

l

i c y R a t e

( D i f f e r e n c e )

.

4

.

3

.

2

.

1 . . 1 . 2 . 3 . 4

.

4

.

3

.

2

.

1 . . 1 . 2 . 3 . 4 1 2 3 4

I n f l a t i

n

( D i f f e r e n c e )

.

2 5

.

2

.

1 5

.

1

.

5 . . 5 . 1

.

2 5

.

2

.

1 5

.

1

.

5 . . 5 . 1 1 2 3 4

Real Interest Rate: Government ___ and Private - -

( D i f f e r e n c e )

.

2

.

1 . . 1 . 2 . 3 . 4 . 5 . 6

.

2

.

1 . . 1 . 2 . 3 . 4 . 5 . 6 1 2 3 4

T B / G D P _ _ , C A / G D P

(

D i f f e r e n c e )

.

1 6

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2

.

1 6

.

1 4

.

1 2

.

1

.

8

.

6

.

4

.

2 . . 2 1 2 3 4

R e a l E x c h a n g e R a t e

( % D i f f e r e n c e ; + = D e p r e c i a t i

n

)

SLIDE 54

Conclusions GIMF has a new nancial sector, based on the BGG nancial accelerator model. It has richer features than in models hitherto published { potential to exploit the full nonlinearity of the BGG formulation. Still work to be done on simulating the nonlinear model, without numeric linearization. { even if we depend on numeric linearization, we still have a richer frame- work for storytelling than the standard BGG implementation.