This document describes MCMAP/Fin, an extension of the MCMAP model that incorporates financial intermediation and inter-bank markets. MCMAP/Fin allows the exploration of monetary policy scenarios and their heterogeneous impacts across countries. It models financial frictions based on Gertler and Kiyotaki (2010) and introduces comparative international risk premiums that drive interest rate spreads and banking costs. The model has been estimated for regions in NAFTA, Europe, and Asia-Pacific to analyze the effects of shocks on deposit, lending, inter-bank, and capital rental rates, as well as real impacts across countries.

1. MCMAP/Fin: Financial insight
Edgar Mata Flores,
Department of Economics

2. What is it?

3. Definition
• Building on our MCMAP platform, financial intermediation and inter-
bank markets are considered in this extension.
• Comparative international risk indicators affecting domestic interest
rates are also introduced.

4. Configuration
• MCMAP + extended and modified version of Gertler and Kiyotaki
(2010)
MCMAP
(2015)
Gertler and
Kiyotaki
(2010)
MCMAP/Fin
(2015)
• Multi-country
• National, regional
and global shocks
• Heterogeneous
economies and
linkages
• Financial
intermediation
• Financial frictions
• Real activity
repercussions
• Endogenising
default
• International
financial
interactions
• Banking
reserves/liquidity
• Comparative risks
and banking costs
• Monetary and fiscal
implications

5. Main features

6. Monetary context
• Evaluates the international impacts of shocks from traditional monetary
policies (via policy rates) and liquidity interventions (e.g. banking
reserves).
• Interest rate spreads are based on a comparative international risk
premium.
• Regional and global shocks are considered but the impacts are shown
at the national level.

7. Financial markets
• Financial intermediation is added on the basis of an extended and
modified version of Gertler and Kiyotaki (2010) which accounts for
financial frictions.
• Reflects the relevance of international financial exchanges and the
conditions in the retail and wholesale (inter-bank) credit markets.
• Comparative international risks drive banking costs.
• It also shows the implications for monetary policies acting through
interest rates or liquidity interventions.

8. The computing platform

9. Specificity
• Allows for the exploration of several policy scenarios involving
traditional monetary policies as well as other liquidity interventions.
• Depicts the heterogeneous impacts on national financial markets.
• Evaluates the national impact on banking default incentives of
regional/global shocks.

10. Coverage
• Bayesian estimations have been performed on 3 regions:
– NAFTA (Canada, Mexico, United States)
– Europe (France, Germany, Spain)
– Asia-Pacific (Australia, Japan, Korea)
• by the means of which their country-level financial parameterisations
have been calculated.
• Main implications of simulated shocks for deposit, lending, inter-bank
and capital-rental rates.
• Also real effects can be shown.

11. Examples of applications
What is the effect
in Canada and
Mexico’s financial
markets of a
monetary policy
shock in the US?
What are the
financial effects of
ECB’s policy rate
on the US
markets?
How monetary
shocks affect
default incentives
in banking?
What is the
international effect
of fractional
reserves policy in
the US?
What are the
effects of ECB’s
policies on
financing costs
and returns?
How does a
monetary shock in
Japan affect the
Korean interest
rates?
How Japan’s
monetary policy
affect Australia and
Korea’s interest
rate spreads?
How credit
markets in NAFTA
and Europe react
to monetary and
liquidity policies in
the US?

12. Further information
• Edgar Mata
emf6@leicester.ac.uk
• My research website:
https://sites.google.com/site/edgarmataeconomist

13. References
• Gertler, M. and Kiyotaki, N. (2010). Financial Intermediation and Credit Policy in
Business Cycle Analysis. In Friedman, B. M. and Woodford, M. (Eds.)
Handbook of Monetary Economics, Vol. 3A, Ch. 11, p.547-599. North-Holland,
Amsterdam.