Lectures at Doug Laxtonís Workshop on Hot Topics in Macro Modeling, Washington DC, March 14-15, 2011
Financial Frictions in Monetary DSGE Models
1) Introducing financial frictions into the New Keynesian DSGE Model.
a) Microfoundations for the Costly State Verification (CSV) approach.
b) Integrating CSV into a very simple GE setting.
c) Integrating CSV into a large-scale NK model and the results of Bayesian estimation of the model using US and EA data.
i) The model
ii) The importance of risk shocks.
iii) The response of monetary policy to an increase in interest rate spreads.
a) Two approaches based on moral hazard.
i) Two-period financial friction model of Gertler-Kiyotaki, (section 3)
ii) Hidden action (section 4)
b) Adverse selection (section 5).
a) The deflation spiral, the government spending multiplier.
b) Quantitative analysis of the role of the zero bound in the dynamics of US data, 2008 and 2009.
a) News and inflation targeting.
b) Using Ramsey optimal policy as a benchmark for evaluating a policy rule.
Background reading on DSGE models and monetary policy:
†Lawrence J. Christiano, Mathias Trabandt, and Karl Walentin, DSGE Models for Monetary Policy Analysis, In Benjamin M. Friedman, and Michael Woodford, editors: Handbook of† Monetary Economics, Vol. 3A, The Netherlands: North-Holland, 2011, pp. 285-367.