A growing number of papers have studied positive and normative implications of financial frictions in DSGE models. We contribute to this literature by studying the welfare-based monetary policy in a two-country model characterized by financial frictions, alongside a number of key features, like...

We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke et al. (1999) setup, where financial frictions enter through the price of loans, and the Kiyotaki and Moore (1997) model, where they concern the quantity of loans. We take both models to...

Dynamic stochastic general equilibrium models have recently become standard tools for policy-oriented analyses. Nevertheless, their forecasting properties are still barely explored. We fill this gap by comparing the quality of real-time forecasts from a richly-specified DSGE model to those from...

Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two economy...

This paper introduces a time domain framework to analyze global identification of stochastically nonsingular DSGE models. A formal identification condition is established that relies on the restrictions linking the observationally equivalent minimal state space representations and on the...