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DSGE Model with Investment Funds and Macroprudential Regulation

MIT License

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

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

VAR IRFS

VAR Results

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

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

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

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
  1. Open MATLAB and add the project to your path:
addpath(genpath('dsge-investment-funds'))
  1. 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}
}