Browsing by Author "Gulan, Adam"

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  • Chang, Roberto; Fernández, Andrés; Gulan, Adam (2017)
    Journal of Monetary Economics January
    BoF DP 22/2016
    Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
  • Chang, Roberto; Fernández, Andrés; Gulan, Adam (2016)
    Bank of Finland Research Discussion Papers 22/2016
    Published in Journal of Monetary Economics, Volume 85, 1 January 2017: 90-109 http://dx.doi.org/10.1016/j.jmoneco.2016.10.009
    Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
  • Gulan, Adam; Haavio, Markus; Kilponen, Juha (2019)
    Bank of Finland Research Discussion Papers 9/2019
    Published in Journal of International Economics 2021; 131; July https://doi.org/10.1016/j.jinteco.2021.103480
    We study macroeconomic consequences of a major trade disruption using the example of the Finnish-Soviet trade collapse in 1991. This is a rare case of a well-identified large trade shock in a developed economy. We find that the shock had a significant effect on Finnish output. While the direct trade channel effect was rather moderate, the shock led to significant tightening of financial conditions. It was therefore endogenously amplified due to the propagation through the domestic financial sector. Even so, the trade collapse was insufficient to generate an all-out economic crisis. It can account for only a part of the Finnish Great Depression (1990 − 1993). The crisis was triggered and prolonged by the meltdown of the overheated financial and banking sectors since 1989. We show that the financial system remained a major independent source of shocks throughout the depression.
  • Gulan, Adam (2021)
    Bank of Finland Bulletin. Blog
    What are the economic causes and consequences of large trade disruptions? Are they able to unleash a full-scale economic crisis? In recent years, the news has been full of events such as the US-China trade war, Brexit and even the collapse of tourism services exports in southern Europe following the outbreak of COVID-19. Finland has its own unique and still recent experience from the early 1990s, when the Soviet Union withdrew from the clearing trade agreement in December 1990.
  • Gulan, Adam; Haavio, Markus; Kilponen, Juha (2021)
    Journal of International Economics July
    Published in BoF DP 9/2019 http://urn.fi/URN:NBN:fi:bof-201906051219
    We study the macroeconomic consequences of a major trade disruption using the example of the Finnish–Soviet trade collapse in 1991. This is a rare case of a well–identified large trade shock in a developed economy. We find that the shock significantly affected Finnish output. Even so, the trade collapse was insufficient to generate an all–out crisis, and accounts for only a part of the Finnish Great Depression (1990–1993). We show that shocks originating domestically played a major role throughout the depression.
  • Gulan, Adam; Kauko, Karlo (2018)
    Kansantaloudellinen aikakauskirja 3/2018
    Vuosikymmenten tauon jälkeen rahoitusmarkkinat ovat jälleen makrotaloustieteen keskeinen tutkimuskohde. Finanssisyklit ovat uusi käsite, jonka merkitys on vakiintumassa. Nämä syklit vaikuttavat etenkin luottokantoihin ja kiinteistöjen hintoihin. Ne ovat pitkäaikaisempia kuin tuotantoon ja työllisyyteen vaikuttavat suhdannevaihtelut. Globaalit finanssisyklit ovat ehkä selvimmin havaittavissa osake- ja varsinkin osakejohdannaismarkkinoilla. Pääosa kirjallisuudesta on voimakkaan empiriapainotteista, ja sen tavoitteena on pikemminkin kuvailla finanssisyklejä kuin testata niiden olemassaoloa. Mitään yleisesti hyväksyttyä valtavirtateoriaa finanssisyklejä aiheuttavasta mekanismista ei ole, mutta syyksi on esitetty muun muassa endogeenista riskinottohalukkuuden vaihtelua ja pankkien strategisesti motivoitua toinen toistensa jäljittelyä. Suomessa finanssisyklin voimakkaimmat nousuvaihteet koettiin 1980- ja 1990-lukujen lopulla, lähimenneisyyden pahin suhdannekuoppa 1990-luvun alussa.
  • Gulan, Adam; Haavio, Markus; Kilponen, Juha (2014)
    Bank of Finland bulletin. Economic outlook 3
    The Finnish economy has experienced three major recessions over the last 25 years, all very different in nature. The turn of the century witnessed the bursting of the dot-com bubble in the ‘Nokia economy’. The country was also severely hit by the global financial crisis of 2007–2008 and the ‘Great Recession’ that followed. However, the most serious episode was the prolonged contraction of the early 1990s, known in Finland as the ‘Finnish Great Depression’. In this article, we use an empirical structural vector autoregression approach to identify different factors that could explain the Finnish business cycle, and the 1990–1993 contraction in particular. We estimate the model of a small open economy, in which we identify both real and financial shocks, from both the demand and the supply side. Shocks are identified by using state-of-the-art sign restrictions methodology. Our approach allows us to study the propagation mechanisms of the shocks and the role of macro-financial linkages. In comparison with earlier studies of the Finnish Great Depression, our approach allows us to quantify the relative importance of different factors.
  • Fernández, Andrés; Gulan, Adam (2012)
    Bank of Finland Research Discussion Papers 23/2012
    Published in American Economic Journal: Macroeconomics, Volume 7, Issue 3, 2015: 153-188 ; http://dx.doi.org/10.1257/mac.20120141
    Countercyclical country interest rates have been shown to be both a distinctive characteristic and an important driving force of business cycles in emerging market economies. In order to account for this, most business cycle models of emerging market economies have relied on ad hoc and exogenous countercyclical interest rate processes. We embed a financial contract àla Bernanke et al. (1999) into a standard small open economy business cycle model that endogenously delivers countercyclical interest rates. We then take the model to the data. For this purpose we build a novel panel dataset for emerging economies that includes financial data, namely sovereign and corporate interest rates as well as leverage. We show that the model accounts well not only for countercyclical interest rates, but also for other stylized facts of emerging economies' business cycles, including the dynamics of leverage.
  • Gulan, Adam; Haavio, Markus; Kilponen, Juha (2014)
    Bank of Finland Research Discussion Papers 24/2014
    We investigate the causes of the Finnish Great Depression, 1990-1993. We find that the collapse of the overheated financial and banking sectors starting in 1989 was the trigger of the economic crisis. Foreign shocks, which include the collapse of trade with USSR in 1991, can account for at most about half of the slump, and these shocks occurred only when the economy was already in free fall. Also, the deleveraging and restructuring process of the financial system substantially prolonged the subsequent recovery. Our methodology involves estimating a structural VAR model with sign and exogeneity restrictions. Importantly, we are able to distinguish between financial shocks affecting the demand for intermediated loans and those shifting the loan supply curve. Hence we also contribute to the discussion on which financial shocks actually matter. Keywords: business cycles, great depressions, financial shocks, sign restrictions, Finland
  • Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha (2022)
    Bank of Finland Research Discussion Papers 3/2022
    We study the impact of monetary policy on income and wealth distributions in a small open economy. To do so, we use household-level registry and survey data from Finland, a small member of a monetary union. This setup allows us to circumvent endogeneity issues and thus helps achieve causal interpretation. We find that expansionary monetary shocks stimulate economic activity, earnings, and asset prices, while barely affecting income and wealth inequality. The reduction in unemployment mostly benefits households in lower income quintiles, where the initial rate of unemployment is high. Households in upper income quintiles, where the rate of employment is higher, benefit relatively more from higher wages. Higher house prices increase the net wealth of all homeowners. However, due to a leverage effect, households with large mortgages located in the lower net wealth quintiles benefit most. Rising stock prices, in turn, benefit mainly households in the top net wealth quintile. Overall, these different channels have counteracting effects on income and wealth inequality.
  • Gulan, Adam; Jokivuolle, Esa; Verona, Fabio (2022)
    BoF Economics Review 2/2022
    The optimal level of banks’ capital requirements has been a key research topic since at least the introduction of the Basel rules in the late 1980s. In this paper, we review the literature, focusing on recent findings from quantitative structural macroeconomic models. While dynamic stochastic general equilibrium models capture second-round (general equilibrium) effects such as the feedback effects from macroeconomic outcomes back to financial intermediation and the dynamic evolution of the economy following regulatory changes, they suffer from tractability issues, including treatment of nonlinear effects, that typically force modeling simplifications. Additionally, studies tend to be concerned with determining the optimal level of fixed capital requirements. Only a handful offer estimates of the optimal size of the dynamic buffers. Since optimal dynamic macroprudential policies depend heavily on the nature of the underlying shocks, questions arise regarding the robustness and potential side effects of such plicies. Despite progress, the optimal level of bank capital requirements – in either fixed or dynamic form – remains largely an open research question.
  • Gulan, Adam (2018)
    Bank of Finland Research Discussion Papers 22/2018
    Since the Global Financial Crisis, academic economists and policymakers have had to deal with uncomfortable questions about the quality of their models and the state of macroeconomics as a profession. This note offers a summary of this discussion, focusing on the Dynamic Stochastic General Equilibrium (DSGE) framework and its underpinnings. This class of models reflects both theoretical advances and perennial modeling challenges. While DSGE modeling developed in times of scarce micro data and limited computational resources, it has much room for improvement given progress along these dimensions and advances in other branches of economics. Key tasks on the to-do-list for model improvement include the modeling on the financial sector, departures from the representative agent and rationality, as well as clarification of the empirical relevance of the Lucas critique. The framework is likely to remain a major research and policy tool, although its limitations call for greater robustness, validation and open recognition of uncertainty in drawing real-life quantitative conclusions.
  • Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha (2022)
    Euro & talous. Analyysi
    EKP:n rahapolitiikan pääasiallisena tavoitteena on hintavakauden ylläpitäminen euroalueella ja sen ohella talouskasvun tukeminen. Rahapolitiikka kohdistuu kotitalouksiin kuitenkin eri tavalla ja voi vaikuttaa tulojen ja varallisuuden jakautumiseen kotitalouksien välillä. Tutkimuksessamme havaitsemme, että EKP:n elvyttävä rahapolitiikka tukee Suomen talouskasvua ja inflaatiota, mutta vaikutukset tulo- ja varallisuuseroihin jäävät vähäisiksi.
  • Gulan, Adam; Haavio, Markus; Kilponen, Juha (2014)
    Euro & talous. Talouden näkymät 3
    Rahoitusmarkkinoilla on merkittäviä vaikutuksia reaalitalouteen. Vaikutukset ovat selvimmillään voimakkaissa nousuja laskusuhdanteissa. Rahoitustekijöiden vaikutus ei kuitenkaan rajoitu kotimaisella rahoitussektorilla syntyviin häiriöihin, vaan rahoitussektori vaikuttaa suhdannevaihteluun myös reaalitaloudellisten häiriöiden välittymiskanavana kerrannaisvaikutusten kautta. Tyypillisesti rahoitussektori vahvistaa tarjonnan, kysynnän ja ulkoisten häiriöiden vaikutuksia Suomen talouteen. Kotimaisten rahoitusmarkkinoiden häiriöt syvensivät 1990-luvun lamaa sekä suoraan että kerrannaisvaikutusten kautta. Myös globaalin rahoituskriisin aikana reaalitalouteen kohdistuneet kerrannaisvaikutukset voimistivat BKT:n pudotusta, mutta vähemmän kuin 1990-luvun alussa.
  • Gulan, Adam (2021)
    Euro & talous. Blogi
    Mitkä ovat kansainvälisen kaupan huomattavien häiriöiden taloudelliset syyt ja seuraukset? Voivatko ne aiheuttaa täysimittaisen talouskriisin? Viime vuosia ovat värittäneet uutistapahtumat kuten Yhdysvaltojen ja Kiinan kauppasota, Brexit sekä jopa turismiin liittyvien palvelujen viennin romahtaminen Etelä-Euroopassa koronapandemian puhkeamisen vuoksi. Suomella on oma ainutlaatuinen ja yhä varsin tuore kokemus 1990-luvun alusta, jolloin Neuvostoliitto vetäytyi clearingsopimuksesta joulukuussa 1990.