Financial frictions key to DSGE performance – NY Fed paper

The New York Fed

The Federal Reserve Bank of New York’s main structural forecasting model performed relatively well in the difficult period after 2008 in large part due to the financial frictions it contains, researchers say in a new paper.

The team, all of whom are currently or formerly affiliated with the New York Fed, note the post-crisis period has been characterised by several peculiarities that a dynamic stochastic general equilibrium model’s “rigid structure” would be likely to struggle with.

A weakened

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