BoE paper builds GDP-at-risk model
Authors generate “fat-tailed” distribution to explore economy’s tendency to hit lower bound on rates
New research published by the Bank of England details a modelling approach that captures the economy’s tendency to suffer from credit crunches and episodes at the effective lower bound on interest rates.
The staff working paper, by David Aikman, Kristina Bluwstein and Sudipto Karmakar, sets out a semi-structural New Keynesian model of GDP at risk. They focus on constraints: how the lower bound reduces the ability of central banks to cushion shocks; how a fall in bank capital can trigger a
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