A model of the French financial system at the Bank of France: MEFISTO version 1 (modelling the evolution of financial stocks)

Abstract

In France, financial deregulation appears to have been thorough going and rapidly established. Several macroeconometric works in the financial field, completed in the early 1980s, thus became questionable. In order to test the full significance of apparent major changes in financial behaviour, special attention has been paid to the long-run properties of financial variables in the course of work at the Bank of France to renew its macroeconometric model. This specific effort has led to the building of MEFISTO, which is to be the financial part of the next version of Bank of France's model. Using a quarterly statement of outstanding assets and liabilities, non-financial agents' demands for financing funds and financial investment have been estimated, assuming they are not constrained by rationing mechanisms. Main portfolio choices are described within a flow of funds approach and it is clearly demonstrated that real wealth, inflation and financial yields have sugnuficant influences which vary in stregth and in timing. All the behavioural relations have been modelled by error correction models, insofar as cointegrating vectors have been found.