Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen the real interest rate reaction to inflation, thereby causeing instability. The introduction of a simple fiscal automatic sta- bilizer restores stability and improves the dynamic performance of the model
Money Targeting, Heterogeneous Agents and Dynamic Instability
Tirelli P
2010-01-01
Abstract
Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen the real interest rate reaction to inflation, thereby causeing instability. The introduction of a simple fiscal automatic sta- bilizer restores stability and improves the dynamic performance of the modelFile in questo prodotto:
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