In this paper, we introduce our GDSGE framework and MATLAB toolbox for solving dynamic stochastic general equilibrium models with a novel global solution method. The framework encompasses many well-known incomplete markets models with highly nonlinear dynamics such as models on financial crises,...

This paper studies the optimal interest rate rule in a DSGE model with housing market spillovers (Iacoviello and Neri (2010)). We find that the optimal rule responds to house price inflation even when the stabilization of house price is not among the objectives of the policymaker, and that the...

Motivated by VAR evidence, we develop a monetary DSGE model where an agency problem between bank financiers, stemming from limited liability and unobservable risk taking, distorts banks’ incentives leading them to choose excessively risky investments. A monetary policy expansion magnifies...

This paper compares the consequences of equity injections into banks with purchases of corporate and government bonds in a financial crisis situation using a New Keynesian model in which non-financial firms predominantly take non-market-based debt from banks instead of issuing securities. Our...

This paper studies how financial intermediation varies across banks. Bank size is a first-order determinant of banks' capital structure in the cross-section. Largest banks have the lowest capital-to-asset ratio and the lowest ratio of Tier-1 capital against risk-weighted assets. These large...

We present the first necessary and sufficient conditions for there to be a unique perfect-foresight solution to an otherwise linear dynamic model with occasionally binding constraints, given a fixed terminal condition. We derive further conditions on the existence of a solution in such models....

We present the first necessary and sufficient conditions for there to be a unique perfect-foresight solution to an otherwise linear dynamic model with occasionally binding constraints, given a fixed terminal condition. We derive further results on the existence of a solution in the presence of...

We present the first necessary and sufficient conditions for there to be a unique perfect-foresight solution to an otherwise linear dynamic model with occasionally binding constraints, given a fixed terminal condition. We derive further conditions on the existence of a solution in such models....

This paper shows how to use the Kalman filter (Kalman 1960) to back out the shocks of a dynamic stochastic general equilibrium model. In particular, we use the smoothing algorithm as described in Hamilton (1994) to estimate the shocks of a sticky-prices and sticky-wages model using all the...

In the last few years, macroeconomic modelling has emphasised the role of credit market frictions in magnifying and transmitting nominal and real disturbances and their implication for macro-prudential policy design. In this paper, we construct a modest New Keynesian general equilibrium model...