The Aino 3.0 model

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Title: The Aino 3.0 model
Author: Silvo, Aino ; Verona, Fabio
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
Series number: 9/2020
Year of publication: 2020
Publication date: 26.5.2020
Pages: 89
Subject (yso): suhdannevaihtelut; asuntomarkkinat; kotitaloudet (organisaatiot); luotot; velat
Keywords: DSGE; mallit; Suomen Pankki; Aino 3.0; avoin talous; Suomi
JEL: E21; E32; E44; F41; R31
Other keywords: business cycles; small open economy; credit constraints; housing market; long-term debt
Abstract: In this paper we present Aino 3.0, the latest vintage of the dynamic stochastic general equilibrium (DSGE) model used at the Bank of Finland for policy analysis. Aino 3.0 is a small-open economy DSGE model at the intersection of the recent literatures on so-called TANK (“Two-Agent New Keynesian”) and MONK (“Mortgages in New Keynesian”) models. It aims at capturing the most relevant macro-financial linkages in the Finnish economy and provides a rich laboratory for the analysis of various macroeconomic and macroprudential policies. We show how the availability of a durable consumption good (housing), on the one hand, and the presence of credit-constrained households, on the other hand, affect the transmission of key macroeconomic and financial shocks. We also illustrate how these new transmission channels affect model dynamics compared to the previous model vintage (the Aino 2.0 model of Kilponen et al., 2016).

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