An estimated DSGE model with search and matching frictions in the credit market

Danilo Liberati

No 986, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Financial frictions have become fundamental for studying the business cycle and credit market dynamics. This work adds to the existing literature by introducing a search and matching scheme in the financial market into a cash in advance New Keynesian DSGE theoretical model. We provide an alternative explanation of the degree of incompleteness in the pass-through from policy rate to loan rates depending on credit market tightness, the search costs sustained by banks, and the relative powers of the agents in loan interest rate bargaining. The model is able to reproduce the countercyclical behaviour of the credit spread with respect to a positive technology shock. It also proposes a scenario in which a credit shock hits the economy. The model is estimated by using the Bayesian procedures. Finally, since there is still some disagreement about the theoretical mechanism by which the interest rate on loans is derived, we survey and compare these theoretical devices with that proposed by this paper.

Keywords: Interest rate pass-through; Credit Spread; Search and Matching; Credit Market Frictions; Bayesian techniques (search for similar items in EconPapers)
JEL-codes: C78 E13 E43 E44 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: An estimated DSGE model with search and matching frictions in the credit market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_986_14

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