Evaluation of the methodological relationship between real business cycle model and macroprudential policy

Abstract

While real business cycle model excluded nominal demand and monetary changes in proof of aggregate output fluctuations, the 2008 crisis proved otherwise. The systemic risk that emerged in this process affected the financial and real sector transmission mechanism towards a contraction. Macroprudential policy brought a solution to the problem, especially with banking loan activities. The aim of this study is to explain the methodological relationship between real business cycle model and macroprudential policy intervention based on the results of the 2008 crisis. In the study, the lack of information set limits the methodological relationship, including the duration of real economic shocks, the degree of interaction between the financial and real sector, and the magnitude of the credit cycle volatility.

Keywords

• real business cycle model
• macroprudential policy
• 2008 crisis
• systemic risk
• financial and real sector