Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/241137
Authors: 
Benigno, Gianluca
Foerster, Andrew
Otrok, Christopher M.
Rebucci, Alessandro
Year of Publication: 
2020
Series/Report no.: 
Staff Report No. 944
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We estimate a workhorse dynamic stochastic general equilibrium (DSGE) model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico's business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt Crisis in the early 1980s, the Peso Crisis in the mid-1990s, and the Global Financial Crisis in the late 2000s. These crisis episodes display sluggish and long-lasting build-up and recovery phases driven by plausible combinations of shocks.
Subjects: 
financial crises
business cycles
endogenous regime-switching
Bayesian estimation
occasionally binding constraints
Mexico
JEL: 
G01
E3
F41
C11
Document Type: 
Working Paper

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