New Keynesian DGSE models need financial spillover channels – ECB paper
Models without powerful financial spillover channels will be “misleading”, say researchers
Some of the most commonly used macroeconomic models fail to adequately distinguish between domestic and foreign financial shocks, a working paper published by the European Central Bank argues.
In Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks, Georgios Georgiadis and Martina Jančoková test their hypothesis that new Keynesian dynamic stochastic general equilibrium (DGSE) models make this error if they lack powerful financial spillover channels.
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