Article ID Journal Published Year Pages File Type
966240 Journal of Macroeconomics 2008 18 Pages PDF
Abstract
This paper develops, estimates and evaluates a heterogeneous agents segmented markets model with endogenous production and a monetary authority that follows a Taylor-type interest rate rule. We find that adding the segmented markets friction significantly improves the statistical out-of-sample prediction performance of the model, and helps generate delayed and realistic impulse response functions to monetary policy shocks. The estimated segmented markets model also outperforms the standard limited participation model, both in terms of marginal likelihood and of qualitative features of the impulse response function. We estimate the fraction of households participating in financial markets to be approximately 22%.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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