Inflation in the Great Recession and New Keynesian Models

@inproceedings{Schorfheide2013InflationIT,
  title={Inflation in the Great Recession and New Keynesian Models},
  author={Marco Del Negro Marc P. Giannoni Frank Schorfheide},
  year={2013}
}
  • Marco Del Negro Marc P. Giannoni Frank Schorfheide
  • Published 2013
It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent great recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a modest and protracted decline in inflation following the rise in financial stress in the fourth quarter of 2008. The model does… CONTINUE READING
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