We compare two standard extensions to the New Keynesian framework that feature financial frictions. The first model, originating from Kiyotaki and Moore (1997), is based on collateral constraints. The second, developed by Carlstrom and Fuerst (1997) and Bernanke et al. (1999), accentuates the...

This paper investigates the properties of distortions that manifest themselves as wedges in the equilibrium conditions of the neoclassical growth model across a sample of 22 OECD countries for the 1970–2011 period. The quantitative relevance of each wedge and its robustness in generating...

Bayesian approaches to the estimation of DSGE models are becoming increasingly popular. Prior knowledge is normally formalized either directly on deep parameters' values (‘microprior’) or indirectly, on macroeconomic indicators, e.g. moments of observable variables (‘macroprior’). We...

The recent financial crisis has stimulated theoretical and empirical research on the propagation mechanisms underlying business cycles, in particular on the role of financial frictions. Many issues concerning the interactions between banking and monetary policy forced policy makers to redefine...

The global financial crisis has reaffirmed the importance of financial factors for macroeconomic fluctuations. Recent work has shown how the conventional pre-crisis prescription that monetary policy should pay no attention to financial variables over and above their effects on inflation may no...

This paper proposes a perturbation-based approach to implement the idea of endogenous financial risk in a standard DSGE macro-model. Recent papers, such as Mendoza (2010), Brunnermeier and Sannikov (2012) and He and Krishnamurthy (2012), that have stimulated the research field on endogenous risk...

In this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their effects on the external sector. We develop a two-country stochastic Dynamic New-Keynesian “perpetual youth” model of the business cycle with...

This paper shows that non-convex costs of financial adjustment are quantitatively relevant for explaining firm dynamics. First, empirically, financial activity is lumpy, more than investment activity. Second, non-convex costs are necessary, in the context of a dynamic investment and financing...

The paper studies the impact of an equity transaction tax (ETT) on financial and real variables in a DSGE model with two types of financial frictions: (1) financial intermediaries facing a leverage constraint; (2) noise shocks that lead to the emergence of non-fundamental equity trade. The ETT...

This paper compares the properties of interest-rate rules such as simple Taylor rules and rules that respond to price-level fluctuations (called Wicksellian rules) in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better than...