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Bayesian evaluation of DSGE models with financial frictions

Michal Brzoza-Brzezina and Marcin Kolasa ()

No 109, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke et al. (1999) setup, where financial frictions enter through the price of loans, and the Kiyotaki and Moore (1997) model, where they concern the quantity of loans. We take both models to the US data and check how well they fit it on several margins. Overall, comparing the models favors the framework of Bernanke et al. (1999). However, even this model is not able to make a clear improvement over the benchmark New Keynesian model, and the Kiyotaki and Moore (1997) underperforms it on several margins. Furthermore, none of the extensions explains the 2007-09 recession as significantly more “financial” than several previous ones.

Keywords: financial frictions; DSGE models; DSGE-VAR; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: E30 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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Related works:
Journal Article: Bayesian Evaluation of DSGE Models with Financial Frictions (2013) Downloads
Working Paper: Bayesian evaluation of DSGE models with financial frictions (2013) Downloads
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