In this paper I study how alternative assumptions about expectation formation can modify the implications of financial frictions for the real economy. I incorporate a financial accelerator mechanism into a version of the Smets and Wouters (2007) DSGE model and perform a set of estimation and...

We develop a two-country New Keynesian model with sticky local currency pricing,distribution costs and a demand elasticity increasing with the relative price. These features help to reduce the exchange rate pass-through to import price at the border and down the chain towards consumption price,...