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A Flow-of-Funds Perspective on the Financial CrisisTobin LIVES: Integrating Evolving Credit Market Architecture into Flow-of-Funds Based Macro-Models

A Flow-of-Funds Perspective on the Financial Crisis: Tobin LIVES: Integrating Evolving Credit... [After the global financial crisis there is now general awareness, particularly at central banks, of how standard macroeconomics as practised up to 2008 failed to understand the interactions between the financial sector and the real economy and so failed to grasp the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This chapter revisits earlier efforts to understand financial-real linkages, such as those of the Yale tradition. Early work by Tobin and Brainard (1963) had anticipated the bank lending channel of monetary transmission as later highlighted by Bernanke and Blinder (1988) and Bernanke and Gertler (1995). Brainard and Tobin’s 1968 stylised paper on pitfalls in financial modelling included three sectors (governments, private sector and banks) and a set of seven financial assets, and focused on investment (rather than consumption) as the key interaction between the financial sector and the real economy. In the late 1970s, the Yale school brought households and therefore consumption into the frame with a complete systems approach to household flow-of-funds analysis; see. for example, the important paper by Backus and Purvis (1980).] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Flow-of-Funds Perspective on the Financial CrisisTobin LIVES: Integrating Evolving Credit Market Architecture into Flow-of-Funds Based Macro-Models

Part of the Palgrave Studies in Economics and Banking Book Series
Editors: Winkler, Bernhard; van Riet, Ad; Bull, Peter
Duca, John; Muellbauer, John
A Flow-of-Funds Perspective on the Financial Crisis — Nov 24, 2015
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Publisher
Palgrave Macmillan UK
Copyright
© Palgrave Macmillan, a division of Macmillan Publishers Limited 2014
ISBN
978-1-349-46946-8
Pages
11 –39
DOI
10.1057/9781137353016_2
Publisher site
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Abstract

[After the global financial crisis there is now general awareness, particularly at central banks, of how standard macroeconomics as practised up to 2008 failed to understand the interactions between the financial sector and the real economy and so failed to grasp the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This chapter revisits earlier efforts to understand financial-real linkages, such as those of the Yale tradition. Early work by Tobin and Brainard (1963) had anticipated the bank lending channel of monetary transmission as later highlighted by Bernanke and Blinder (1988) and Bernanke and Gertler (1995). Brainard and Tobin’s 1968 stylised paper on pitfalls in financial modelling included three sectors (governments, private sector and banks) and a set of seven financial assets, and focused on investment (rather than consumption) as the key interaction between the financial sector and the real economy. In the late 1970s, the Yale school brought households and therefore consumption into the frame with a complete systems approach to household flow-of-funds analysis; see. for example, the important paper by Backus and Purvis (1980).]

Published: Nov 24, 2015

Keywords: Monetary Policy; House Price; Credit Default Swap; Mortgage Market; Dynamic Stochastic General Equilibrium

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