This note corrects a mistake in the estimation algorithm of the time-varying structural vector autoregression model of Primiceri (2005) and proposes a new algorithm that correctly applies the procedure proposed by Kim, Shephard, and Chib (1998) to the estimation of VAR or DSGE models with stochastic volatility. Relative to Primiceri (2005), the correct algorithm involves a different ordering of...

In this paper, it is argued that the observed high positive correlation between national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical findings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results...

Abstract The current financial crisis highlights the need to develop DSGE models with real-financial linkages and an active banking sector. This paper proposes a fully micro-founded framework that incorporates optimizing banks, the interbank market, and the credit market into a DSGE model, and evaluates the role of banks and financial shocks in the U.S. business cycles. We assume two types of h...

This paper applies a new Bayesian framework laid out in Faust and Gupta (2009) for evaluating the suitability of dynamic stochastic general equilibrium (DSGE) models for the task of monetary policy analysis. The paper characterizes practical monetary policy analysis as determining how intended policy should be revised in light of the structural interpretation of incoming news. The news is defin...

The Rebuilding Macroeconomic Theory Project, led by David Vines and Samuel Wills (2020), is an important, albeit long overdue, initiative to rethink a failing mainstream macroeconomics. Professors Wills, who must be congratulated for stepping up the challenge of trying make macroeconomics relevant again, call new multiple-equilibrium diverse (MEADE) paradigm Their idea start with simple models,...