The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

Monetary DSGE models are widely used because they fit the data well and they can be used to address important monetary policy questions. We provide a selective review of these developments. Policy analysis with DSGE models requires using data to assign numerical values to model parameters. The chapter describes and implements Bayesian moment matching and impulse response matching procedures for this purpose.

Monetary DSGE models are widely used because they fit the data well and they can be used to address important monetary policy questions. We provide a selective review of these developments. Policy analysis with DSGE models requires using data to assign numerical values to model parameters. The chapter describes and implements Bayesian moment matching and impulse response matching procedures for this purpose.

The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

Monetary DSGE models are widely used because they fit the data well and they can be used to address important monetary policy questions. We provide a selective review of these developments. Policy analysis with DSGE models requires using data to assign numerical values to model parameters. The chapter describes and implements Bayesian moment matching and impulse response matching procedures for this purpose.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract How do aggregate quantities at the business cycle frequency respond to shocks to the spread between residential mortgage rates and government bonds? Using a structural VAR approach, we …nd that mortgage spread shocks impact the real economy by both economically and statistically signi…cant magnitudes: a 100 basis point decline in the spread causes a peak increase in consumption, residential investment and GDP by 1.6 percent, 6.2 percent and 1.9 percent, respectively. These e¤ects are magni…ed when the policy rate is held …xed, as was the case in the US during the recent implementation of unconventional monetary policy. Terms of use: Documents in

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