Journal
JOURNAL OF MONEY CREDIT AND BANKING
Volume 45, Issue 8, Pages 1451-1476Publisher
WILEY
DOI: 10.1111/jmcb.12059
Keywords
E30; E44; financial frictions; DSGE models; Bayesian analysis
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We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke, Gertler, and Gilchrist () setup, where frictions affect the price of loans, and the Kiyotaki and Moore () 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, Gertler, and Gilchrist 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.
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