Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It

49 Pages Posted: 6 Jun 2013 Last revised: 27 Sep 2013

See all articles by František Brázdik

František Brázdik

Czech National Bank; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Ales Marsal

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Students

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

Abstract

This survey gives insight into the ongoing research in financial frictions modeling. The recent financial turmoil has fueled interest in operationalizing financial frictions concepts. The rapid growth of the literature on financial frictions motivates this review. The empirical facts that motivate the inclusion of financial frictions are surveyed. This survey provides a description of the basic approaches for introducing financial frictions into dynamic stochastic general equilibrium models. The significance and empirical identification of the financial accelerator effect is then discussed. The role of financial frictions models in CNB monetary and macroprudential policy is described. It is concluded that given the heterogeneity of the approaches to financial frictions it is beneficial for the conduct of monetary policy to focus on the development of satellite approaches. DSGE models with financial frictions used to generate stress-testing scenarios could complement current stress-testing practice, but are not able to replace it.

Suggested Citation

Brázdik, František and Marsal, Ales, Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It (2011). Available at SSRN: https://ssrn.com/abstract=2274689 or http://dx.doi.org/10.2139/ssrn.2274689

František Brázdik (Contact Author)

Czech National Bank ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Ales Marsal

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Students ( email )

Opletalova 26
Praha 1
Czech Republic

Register to save articles to
your library

Register

Paper statistics

Downloads
113
Abstract Views
444
rank
137,280
PlumX Metrics