Banking Sector in DSGE Model with News Shocks

The 2008 crash concentrated the attention of macroeconomists around financial markets and proved the importance of including financial intermediation shocks in the analysis. At the same time, consideration of the news structure of shocks when the banking sector is included in the model seems more realistic based on many previous studies. There is still no consensus on the effectiveness of predictable fiscal and monetary policies, which may be due to the fact that enough attention has not been paid to the analysis of news shock structures. The purpose of the article is to find out what is the effect of shocks on the main macroeconomic indicators when considering various news structures and including the banking sector, and to identify the effects of macroprudential regulation in terms of policy effectiveness. A DSGE model with a banking sector and two alternative structures of news shocks was built. Using calculations in MATLAB, we proved the relatively high importance of the news shock of the effectiveness of financial intermediation (this shock accounted for more than 20% of variation in all specifications) and markup shocks, total factor productivity shock, marginal efficiency of investment shock. We proved the sensitivity of the conclusions regarding the significance of the predicted fiscal and monetary shocks to the given news structure. The significance of the total factor productivity shock decreases with a change in its news structure (to long-run), but the significance of the financial shock increases. Conducting restrictive macroprudential policy leads to less effective fiscal policy, but at the same time to greater monetary effectiveness, which suggests the need for careful selection of the degree of financial regulation.