Software for doing the computations in the handout on costly state verification (CSV) financial frictions. See the readme.m file inside the zip file for instructions. The handout uses some properties of the zero profit function of banks, and these are derived here.

To make sure the software runs correctly, click on the zip file (i.e., the word, ‘Software’ above). When that file has downloaded click on it (probably its name is on your task bar) and then click on ‘Extra To’ an option that is probably on the task bar at the top of the window you just opened. You should now be in the ‘Extraction path and options’ window. Select a location in the right panel. To give this software its own location, click on ‘New folder’ and type in a name for the new folder. Then, select ‘ok’ and the software will download automatically into the folder you just created.

Background readings: Bernanke-Gertler-Gilchrist’s classic 1999 paper. See also, ‘Risk Shocks’, by Christiano-Motto-Rostagno (technical appendix).

The above two references explore CSV financial frictions in sticky price models. The handout places them inside the neoclassical model. Here is a writeup that places them inside the neoclassical model and treats uncertainty carefully.