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

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

No 2020-10, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We develop a new approach to estimating DSGE models with occasionally binding borrowing constraints and apply it to Mexico’s business cycle and financial crisis history. We propose a new endogenous regime-switching specification of the borrowing constraint, develop a general perturbation method to solve the model, and estimate it using Bayesian methods. The estimated model fits the data with well-behaved shocks, identifying three crisis episodes of varying duration and intensity: the early-1980s Debt Crisis, the mid-1990s Tequila Crisis, and the late-2000s Global Financial Crisis. The estimated crisis episodes are much more persistent and in line with the data than traditional models.

Keywords: Financial Crises; Endogenous Regime-Switching; Bayesian Estimation; Business Cycles; Mexico; Occasionally Binding Constraints (search for similar items in EconPapers)
JEL-codes: C11 E3 F41 G01 (search for similar items in EconPapers)
Pages: 74
Date: 2021-07-02
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac, nep-mon, nep-opm and nep-ore
Note: Original paper published 3/30/2020.
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Citations: View citations in EconPapers (17)

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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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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:87709

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DOI: 10.24148/wp2020-10

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