In this paper, we compare the empirical properties of closed- and open-economy DSGEmodels estimated on Euro area data. The comparison is made along several dimensions;we examine the models in terms of their marginal likelihoods, forecasting performance,variance decompositions, and their...

We consider a linear growth model with idiosyncratic productivity shocks in whichproducers cannot commit to repay their loans. Borrowing constraints are determinedendogenously by the borrowers’ incentives to repay, assuming that defaulters lose a shareof output and are excluded from future...

This paper presents a two-country dynamic general equilibrium model with imperfectcompetition and nominal price rigidities in which productivity shocks coexist withmarkup shocks. After analyzing the features of the optimal cooperative solution, we showthat this allocation can be implemented in a...

We study identification in a class of linear rational expectations models. For any givenexactly identified model, we provide an algorithm that generates a class of equivalentmodels that have the same reduced form. We use our algorithm to show that a modelproposed by Jess Benhabib and Roger...

Recent literature on the design of optimal monetary policy has shown that deviations fromprice stability are small whenever prices are sticky. This paper reconsiders this issue byintroducing capital accumulation in the model. Optimal monetary policy in this setupimplies small deviations from...

This paper examines the question to what extent premia for macroeconomic risks inbanking are sufficient to avoid banking crises. We investigate a competitive bankingsystem embedded in an overlapping-generations model subject to repeatedmacroeconomic shocks. We show that even if banks fully...