The identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretical consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest the proposed identification strategy is succ...

Prior to the …nancial crisis mainstream monetary policy practice had become disconnected from money. We outline the basic rationale for this development using a simple model of money and credit in which we explore the conditions under which money matters directly for the conduct of policy. Then, drawing on Goodfriend and McCallum’s (2007) DSGE model, we examine the circumstances under which mon...

I characterize cyclical fluctuations in the cross-sectional dispersion of firm-level productivity. Using the micro-estimated dispersion, or “risk,” stochastic process as an input to a baseline DSGE financial accelerator model, I assess how well the model reproduces cyclical movements in both real and financial conditions of the economy. In the model, risk shocks calibrated to micro data lead to...