Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach

Alessandro Rebucci (), Gianluca Benigno, Andrew Foerster and Christopher Otrok

No 14545, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate a workhorse DSGE model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between being the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico's business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt, Tequila, and Global Financial Crises. The crisis episodes generated by the estimated model display sluggish and long-lasting build-up and stagnation phases driven by cocktails of shocks. Different sets of shocks explain different variables over the business cycle and the three historical episodes of sudden stops identified.

Keywords: Financial crises; Business cycles; Endogenous regime-switching; Bayesian estimation; Occasionally binding constraints; Mexico (search for similar items in EconPapers)
JEL-codes: C11 E3 F41 G01 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Estimating macroeconomic models of financial crises: An endogenous regime‐switching approach (2025)
Working Paper: Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach (2020)
Working Paper: Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach (2020)
Working Paper: Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach (2020)
Working Paper: Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime Switching Approach (2017)
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