We show that to account for the cross-sectional divergence in debt-to-income ratios in US data a DSGE model must assume a tax reallocation across the top- and bottom-income quantile of the population, rather than differential productivity growth, and low cost of access to financial intermediation.

We propose a DSGE model with income heterogeneity to help discriminate across competing explanations of the cross-sectional divergence in debt-to-income ratios in US data. We show that for a DSGE model to be consistent with the data, the divergence in income growth should not be anticipated and...

We study the restrictions implied by optimal policy DSGE models for the volatility of observable endogenous variables. Our approach uses a parametric family of singular models to discriminate which volatility sample outcomes have zero probability of being generated by an optimal policy. Thus the...

Dynamic Stochastic General Equilibrium models are often tested against empirical VARs or estimated by minimizing the distance between the model's and the VAR impulse response functions. These methodologies require that the data-generating process consistent with the DSGE theoretical model has a...