This paper develops a DSGE model which is shown to explain variation in the nominal and real term structure as well as inflation surveys and four macrovariables for the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall...

We challenge the view that the negative correlation between the Federal Funds and the Euler equation interest rate is linked to monetary policy. Using Monte Carlo experiments, we show that the negative correlation can be explained by risk premium disturbances.

Euler equations are the key link between monetary policy and the real economy in NK models. Under separable preferences, they fail to match interest rates. Non-separability between leisure and consumption significantly improves their fit and reliability for studying monetary policy.

Traditional approaches to separate the underlying trend of potential output from cyclical developments mostly rely on the concept of nonaccelerating inflation output and are thus unable to detect upswings caused by the financial cycle, which often appear to be unsustainable in the long run. In...

Este artículo presenta un análisis cuantitativo del impacto de la política monetaria sobre las tasas de interés de los créditos hipotecarios, tanto en el largo como en el corto plazo. En primer lugar, los resultados de los ejercicios econométricos confirman la existencia de una relación...

This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. Monetary policy, fiscal policy, and regulatory policy became more discretionary,...

Are exogenous shocks to lending spreads in corporate credit markets a substantial source of macroeconomic fluctuations? An alternative explanation of the data is that borrowing costs respond endogenously to expectations of future default, driven by macroeconomic shocks. We investigate by...

This paper examines the missing transmission mechanism in Friedman's and Schwartz's monetary explanation of the Great Depression. We review the challenge provided by the decline in nominal interest rates in the early 1930s, and show that the monetary explanation requires not just that there were...

A dynamic stochastic general equilibrium (DSGE) model with endogenous defaults of firms has been developed. Proposed mechanism of defaults is very flexible. It takes into account an amount of assets owned by firms. It suggests that banks receive some payment from firm after default. The model is...

This paper provides a survey of business cycle facts, updated to take account of recent data. Emphasis is given to the Great Recession, which was unlike most other postwar recessions in the United States in being driven by deleveraging and financial market factors. We document how recessions...