DSGE Model with Investment Funds and Macroprudential Regulation

A MATLAB implementation of the DSGE (Dynamic Stochastic General Equilibrium) model with investment funds and macroprudential regulation, based on the ECB Working Paper No. 2695.

Author

• Chen Xingqiang
• GitHub: @chenxingqiang
• Email: chen.xingqiang@iechor.com

Project Structure

project/
├── src/                    # Source code
│   ├── models/            # Model implementations
│   ├── calibration/       # Model calibration
│   └── analysis/          # Analysis tools
├── lib/                   # Utility functions
├── tests/                 # Test suites
├── results/               # Results and figures
└── doc/                   # Documentation

Key Features

• VAR model analysis of fund outflows' macroeconomic impact
• DSGE model with:
  • Household sector with deposit preferences
  • Banking sector
  • Investment fund sector with liquidity risk
  • Production sector
• Welfare analysis of macroprudential regulation
• Policy analysis and shock response evaluation

Key Results

1. VAR Analysis

---

The VAR analysis shows that investment fund outflows have significant macroeconomic effects. A 1% outflow shock leads to:

• 0.4% reduction in industrial production
• Persistent effects on bank lending
• Significant increases in corporate bond spreads

2. Optimal Regulation

The optimal liquidity requirement is found to be 7.2% of assets under management. This result balances:

• Benefits from reduced resource losses
• Costs from reduced household deposits
• Changes in financial intermediation

3. Welfare Decomposition

The welfare effects can be decomposed into:

• Resource gains from lower bond sales
• Utility losses from reduced household deposits
• Effects from changes in financial intermediation

4. Policy Effects

The liquidity regulation effectively stabilizes the economy under preference shocks by:

• Reducing forced bond sales
• Maintaining financial intermediation
• Stabilizing consumption and output

Installation

1. Clone the repository:

git clone https://github.com/chenxingqiang/dsge-investment-funds.git

2. Open MATLAB and add the project to your path:

addpath(genpath('dsge-investment-funds'))

3. Run the main analysis:

main

Usage

Basic Model Simulation

params = ModelParameters();
model = DSGEModel(params);
[ss, success] = model.compute_steady_state();

Policy Analysis

policy_analyzer = PolicyAnalysis(model);
[opt_policy, results] = policy_analyzer.find_optimal_policy();

Shock Analysis

shock_results = policy_analyzer.analyze_aggregate_shock('preference', opt_policy);

Testing

Run all tests:

runtests('tests')

Contributing

1. Fork the repository
2. Create your feature branch
3. Commit your changes
4. Push to the branch
5. Open a Pull Request

License

This project is licensed under the MIT License - see the LICENSE file for details.

Acknowledgments

Based on the ECB Working Paper No. 2695: "Macroprudential regulation of investment funds" by Giovanni di Iasio, Christoph Kaufmann, and Florian Wicknig.

Citation

If you use this code in your research, please cite:

@techreport{diIasio2022,
    title={Macroprudential regulation of investment funds},
    author={di Iasio, Giovanni and Kaufmann, Christoph and Wicknig, Florian},
    year={2022},
    institution={European Central Bank},
    number={2695}
}