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Estimation of non-linear DSGE models made easy: taking second-order model approximations to the data (with an application to a DSGE model with a banking sector)

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  • Robert Kollmann

    (ECARES, Université Libre de Bruxelles)

Abstract

I provide an application of the method by estimating a non-linear DSGE model of an economy with a banking sector that faces a collateral constraint. In this setting, bank capital is a key state variable. The economy exhibits an important non-linearity, as negative shocks to bank capital have a much more detrimental effect on real activity when the health of the banking sector is poor, than when banks are well-capitalized. Estimates of the non-linear model, based on the novel method here, suggest that this non-linearity is quantitatively powerful in US and Euro Area data.

Suggested Citation

  • Robert Kollmann, 2013. "Estimation of non-linear DSGE models made easy: taking second-order model approximations to the data (with an application to a DSGE model with a banking sector)," 2013 Meeting Papers 1255, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:1255
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    References listed on IDEAS

    as
    1. Kollmann, Robert & Kim, Jinill & Kim, Sunghyun H., 2011. "Solving the multi-country Real Business Cycle model using a perturbation method," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 203-206, February.
    2. Kollmann, Robert & Ratto, Marco & Roeger, Werner & in′t Veld, Jan, 2013. "Fiscal policy, banks and the financial crisis," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 387-403.
    3. Robert Kollmann & Werner Roeger & Jan in'tVeld, 2012. "Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measure," Working Papers ECARES ECARES 2012-008, ULB -- Universite Libre de Bruxelles.
    4. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 755-775, January.
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