This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of...

Recent evidence by Bils and Klenow (2004) and Klenow and Kryvstov (2003) shows that the average price duration for US CPI-basket goods is in the order of one to two quarters, challenging the monetary business cycle research to try and explain how short price durations can nevertheless generate a...