Banking sector and consumer confidence effects added in DNB’s macroeconomic model
The most significant change is that the model now contains a module describing the behaviour of the banking sector. This improves analysis of the interactions between the banking sector and the rest of the economy. The tool can be used, for instance, to explore the influence of more stringent capital requirements for banks on the wider economy, including aspects such as output, consumption, prices, lending rates and loan volumes. The model of the pension sector has been revised, and the influence of consumer confidence on consumption has been added. In addition, the entire model has been estimated using the most recently available data. A detailed explanation of the new model, referred to as DELFI 2.0, is available on DNB’s website.
Using the DELFI tool
The DELFI tool (http://delfi.dnb.nl/) is aimed at pupils, students, teachers, policymakers, journalists and others interested in macroeconomics. Apart from changes attributable to the revision of the underlying model, the DELFI tool itself still works in the same way and the user interface has remained unchanged. The presentation of the output is also the same. The number of variables that can be adjusted has increased from 11 to 13. These two new shocks are a change in the capital requirements for banks and a change in government spending that is funded directly by public debt. In addition, outcomes are shown for five financial variables, namely the mortgage rate, the lending rate to firms, loans to households, loans to firms, and the leverage ratio of the banking sector (banking capital as a percentage of total assets).
Users can shock the model positively or negatively by changing the direction, size and duration of one or at most two economic variables. They can select from the following variables: world trade growth, oil prices, interest rates, the effective exchange rate, government spending (both balanced budget and debt-financed), wage and income taxes, labour supply growth, wage movements, pension contributions, equity prices, house prices and capital requirements for the banking sector. On the basis of the selected input, the DELFI tool calculates the expected macroeconomic impact for the first eight years following the start of the shock. The DELFI tool compares the user's own simulation against the baseline projection, which represents the development of the macroeconomy in the absence of the selected change factors.
Results of DNB's DELFI tool further explained
The DELFI tool simulates the future development of 21 key economic variables, including GDP, private consumption, unemployment, the government balance and credit, and presents the effects in charts and tables. By comparing the simulation against the baseline projection, the tool gives users an indication of the impact of the selected change on the Dutch economy.
The example below simulates the effect of a positive shock to world trade (6% annual growth instead of 4% in the baseline projection) on GDP growth. GDP volume grows more rapidly than in the 1.5% baseline projection, edging up to more than 2% in the fourth year and subsequently falling back somewhat. In order to help the user understand the results, every change or shock applied is accompanied by a detailed explanation of the underlying economic mechanisms.