The aim of this work is to compare and contrast different ways of modeling financial shocks and financial intermediaries in the Dynamic Stochastic General Equilibrium models (DSGE models) and to discuss the empirical evidence on the importance of modeling financial sector and financial shocks in...

At the forefront of macroeconomic research on the causes of the Great Financial Cri- sis (GFC) was and still is the usage of dynamic stochastic general equilibrium (DSGE) models. To capture the nonlinearities of the GFC, these models were enriched with a variety of financial frictions. This...