Estimation of non-linear DSGE models made easy: taking second-order model approximations to the data (with an application to a DSGE model with a banking sector)

Robert Kollmann ()

No 1255, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: I provide an application of the method by estimating a non-linear DSGE model of an economy with a banking sector that faces a collateral constraint. In this setting, bank capital is a key state variable. The economy exhibits an important non-linearity, as negative shocks to bank capital have a much more detrimental effect on real activity when the health of the banking sector is poor, than when banks are well-capitalized. Estimates of the non-linear model, based on the novel method here, suggest that this non-linearity is quantitatively powerful in US and Euro Area data.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1255

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