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Bayesian Evaluation of DSGE Models with Financial Frictions
Author(s) -
BRZOZABRZEZINA MICHAŁ,
KOLASA MARCIN
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12059
Subject(s) - dynamic stochastic general equilibrium , economics , financial accelerator , bayesian probability , new keynesian economics , econometrics , impulse response , bayes estimator , benchmark (surveying) , monetary policy , monetary economics , statistics , mathematics , mathematical analysis , geodesy , geography
We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke, Gertler, and Gilchrist ([Bernanke, Ben S., 1999]) setup, where frictions affect the price of loans, and the Kiyotaki and Moore ([Kiyotaki, Nobuhiro, 1997]) model, where they concern the quantity of loans. We take both models to the data and check how well they fit it on several margins. Overall, comparing the models favors the Bernanke, Gertler, and Gilchrist framework. However, even this model does not make a clear improvement over the New Keynesian benchmark in terms of marginal likelihood and similarity of impulse responses to those obtained from a VAR.