Bayesian evaluation of DSGE models with financial frictions
Michal Brzoza-Brzezina and
Marcin Kolasa ()
No 71, Working Papers from Department of Applied Econometrics, Warsaw School of Economics
We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke et al. (1999) setup, where frictions affect the price of loans, and the Kiyotaki and Moore (1997) model, where they concern the quantity of loans. We take both models to the data and check how well they fit it on several margins. Overall, comparing the models favors the Bernanke et al. framework. However, even this model does not make a clear improvement over the New Keynesian benchmark in terms of marginal likelihood and similarity of impulse responses to those obtained from a VAR. These findings point at the need for further research to develop macrofinancial models that would better describe the business cycle dynamics.
Keywords: financial frictions; DSGE models; 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
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Journal Article: Bayesian Evaluation of DSGE Models with Financial Frictions (2013)
Working Paper: Bayesian evaluation of DSGE models with financial frictions (2012)
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