We introduce a ''new'' algorithm that can be used to solve stochastic dynamic general equilibrium models. This approach exploits the fact that the equations defining equilibrium can be viewed as set of algebraic equations in the neighborhood of the steady-state. Then a recursive scheme, which...

This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstrates that risk shocks to the housing production sector are a...

This paper analyzes the role of stochastic uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production and provide estimates of the time-series properties of risk shocks by...

How do differences in the credit channel affect investment behavior in the U.S. and the Euro area? To analyze this question, we calibrate an agency cost model of business cycles. We focus on two key components of the lending channel, the default premium associated with bank loans and bankruptcy...

We extend the Carlstrom and Fuerst (1997) agency cost model of business cycles by including time varying uncertainty in the technology shocks that affect capital production. We first demonstrate that standard linearization methods can be used to solve the model yet second moment effects still...

We consider the role uncertainty in incomplete markets environment that includes housing sector. Frictions such as poorly functioning rental and mortgage markets are likely important in accounting for cross-sectional issues such as life-cycle consumption and savings patterns. To incorporate some...

Taylor rules posit a linear relationship between the output gap, inflation, and short-term nominal interest rates. Previous work has shown that the relationship between these key economic variables as captured by the Taylor rule is quite robust both across countries and monetary policy regimes....

Typically real-business-cycle models are assessed by their ability to mimic the covariances and variances of actual business cycle data. Recently, however, advocates of RBC models have used them to fit the historical path of real GDP using the Solow residual as a driving process. We demonstrate...