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This paper surveys dynamic stochastic general equilibrium models with financial frictions in use by central banks and discusses priorities for future development of such models for the purpose of monetary and financial stability analysis. It highlights the need to develop macrofinancial models which allow analysis of the macroeconomic effects of macroprudential policy tools and to evaluate elements of the Basel III reforms as a priority. The paper also reviews the main approaches to introducing financial frictions into general equilibrium models.

Business & Economics --- Economic Theory --- Equilibrium (Economics) --- Banks and banking, Central. --- Global Financial Crisis, 2008-2009. --- Global Economic Crisis, 2008-2009 --- Subprime Mortgage Crisis, 2008-2009 --- Banker's banks --- Banks, Central --- Central banking --- Central banks --- Disequilibrium (Economics) --- Economic equilibrium --- General equilibrium (Economics) --- Partial equilibrium (Economics) --- Financial crises --- Banks and banking --- DGE (Economics) --- DSGE (Economics) --- Dynamic stochastic general equilibrium (Economics) --- SDGE (Economic theory) --- Economics --- Statics and dynamics (Social sciences) --- Banks and Banking --- Econometrics --- Finance: General --- Forecasting --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Forecasting and Simulation --- Financial Markets and the Macroeconomy --- Forecasting and Simulation: Models and Applications --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Economics --- General Financial Markets: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Computable and Other Applied General Equilibrium Models --- Forecasting and Other Model Applications --- Banking --- Finance --- Economic theory & philosophy --- Econometrics & economic statistics --- Economic Forecasting --- Financial frictions --- Financial stability assessment --- Interbank markets --- Dynamic stochastic general equilibrium models --- Economic theory --- Financial sector policy and analysis --- Economic forecasting --- Econometric analysis --- Financial markets --- Financial services industry --- International finance --- Econometric models --- New Zealand

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Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.

Banks and Banking --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- Central Banks and Their Policies --- Price Level --- Deflation --- Finance --- Macroeconomics --- Currency --- Foreign exchange --- Monetary economics --- Banking --- Yield curve --- Exchange rates --- Inflation targeting --- Central bank policy rate --- Financial services --- Prices --- Monetary policy --- Interest rates --- Czech Republic

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Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.

Inflation --- Macroeconomics --- Money and Monetary Policy --- Production and Operations Management --- Price Level --- Deflation --- Monetary Policy --- Energy: Demand and Supply --- Prices --- Macroeconomics: Production --- Monetary economics --- Oil prices --- Output gap --- Inflation targeting --- Monetary tightening --- Production --- Monetary policy --- Economic theory --- Philippines

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Belarusian authorities contemplate transiting to inflation targeting. The paper suggests a small structural model at the core of the forecasting and policy analysis system. A well-researched canonical structure of Berg, A., Karam, P. and D. Laxton (2006) is extended to capture specifics of Belarusian economy and macroeconomic policy. The modified model’s policy block reflects a monetary targeting regime and allows for transition from it to an interest-rate-based framework. Adding wages, directed lending and dollarization allow for studying implications of activist wage policy, state program lending, and dollarization for macroeconomic stability and the strength of the policy transmission mechanism.

Belarus --- Republic of Belarus --- Rėspublika Belarusʹ --- Republic of Byelarusʹ --- Respublika Byelarusʹ --- Byelarus --- République de Bélarus --- República de Belarús --- Republik Belarus --- Weissrussland --- White Russia --- Belorussia --- Belorus --- Biélorussie --- Bielorussia --- Białoruś --- Беларусь --- Рэспубліка Беларусь --- Республика Беларусь --- ベラルーシ --- Berarūshi --- Byelorussian S.S.R. --- Economic conditions --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Money and Interest Rates: Forecasting and Simulation --- Monetary Policy --- Quantitative Policy Modeling --- Price Level --- Deflation --- Macroeconomics: Production --- Demand for Money --- Macroeconomics --- Monetary economics --- Currency --- Foreign exchange --- Exchange rates --- Inflation targeting --- Output gap --- Demand for money --- Prices --- Monetary policy --- Production --- Money --- Economic theory --- Belarus, Republic of

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Structural Quarterly Projection Model for Belarus.

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