We consider two approaches to incorporate judgment into DSGE models. First, Bayesian estimation indirectly imposes judgment via priors on model parameters, which are then mapped into a judgmental interest rate decision. Standard priors are shown to be associated with highly unrealistic...

Two approaches are considered to incorporate judgment in DSGE models. First, Bayesian estimation indirectly imposes judgment via priors on model parameters, which are then mapped into a judgmental interest rate decision. Standard priors are shown to be associated with highly unrealistic...

We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors. We allow for time-varying risk aversion (via external habit formation)...

We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors. We allow for time-varying risk aversion (via external habit formation)...

The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure...