Impacts of a new harmonised regulatory index on a small open – economy DSGE model of UK regulation

Lloyd, Jonathan ORCID: https://orcid.org/0000-0002-6031-0209 2021. Impacts of a new harmonised regulatory index on a small open – economy DSGE model of UK regulation. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

This thesis attempts to assess the implications of prudential regulation on economic stability and welfare. In this pursuit, I implement regulation directly into a Small Open - Economy Dynamic Stochastic General Equilibrium (DSGE) model that entails Zero Lower Bound (ZLB) properties and a banking sector that lends to credit constrained entrepreneurs. Here, regulation appears both in the consumption Euler equation through the mortgage lending channel and in the external credit premium equation through the bank lending channel. The regulatory variables utilised in this thesis are modelled on actual quantities obtained from a Regulation Intensity Index (RII) within the HarMap database, created for the purpose of this analysis. The model is initially evaluated based on calibrated parameters before testing and re-estimating the model by the Indirect Inference Wald Test, a simulation-based algorithm that formally selects the optimal parameter values. Here, the model employs un-filtered non-stationary data for the period 1995Q1 to 2016Q4. The results of the welfare analysis reveal that regulation can stabilise the economy and increase welfare when regulation is allowed to respond to the output gap. However, regulation is destabilising when uncoordinated with monetary policy.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	Macroprudential Regulation, Macroprudential Policy, Monetary Policy, Zero Lower Bound, HarMap, Indirect Inference, Financial Frictions, DSGE, Dynamic Stochastic General Equilibrium, Macroprudential Index
Date of First Compliant Deposit:	16 November 2021
Last Modified:	10 Feb 2024 02:18
URI:	https://orca.cardiff.ac.uk/id/eprint/145518

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