Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/157966
Authors: 
Lindé, Jesper
Smets, Frank
Wouters, Rafael
Year of Publication: 
2016
Series/Report no.: 
Sveriges Riksbank Working Paper Series 323
Abstract: 
In this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has difficulty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and finally, we extend the model with a financial accelerator and allow for time-variation in the endogenous propagation of financial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not suffice to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies.
Subjects: 
Monetary policy
DSGE and VAR models
Regime-Switching
Zero Lower Bound
Financial Frictions
Great Recession
Macroprudential policy
Open economy
JEL: 
E52
E58
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.