A time varying DSGE model with Financial frictions
MetadataShow full item record
We build a time varying DSGE model with Önancial frictions in order to evaluate changes in the responses of the macroeconomy to Önancial friction shocks. Using US data, we Önd that the transmission of the Önancial friction shock to economic variables, such as output growth, has not changed in the last 30 years. The volatility of the Önancial friction shock, however, has changed, so that output responses to a one-standard deviation of the shock increase twofold in the 2007-2011 period in comparison with the 1985-2006 period. The time varying DSGE model with Önancial frictions improves the accuracy of forecasts of output growth and ináation during the tranquil period of 2000-2006, while delivering similar performance to the Öxed coe¢ cient DSGE model for the 2007-2012 period.
AuthorsGIRAITIS, L; Galvao, AB; Kapetanios, G; Petrova, K
- College Publications