Loglinearization Issues in DSGE Model with EFP and LAMP

General DSGE Modeling
1

Hi everyone,

I’m working with a DSGE model that includes External Finance Premium (EFP) and Limited Asset Market Participation (LAMP), based on the setup from the paper by Brzoza-Brzezina, Kolasa, and Makarski (“The anatomy of standard DSGE models with financial frictions”).

The issue is that the Net Worth and Riskiness shock explains only a very small share of the variance. Right now, the shock only enters the equation for the rate of return of the bank and the entrepreneurs’ net worth, but I’m not sure if that’s enough or if I’m missing other places where it should show up.

If anyone has a log-linearized version of this model (or something close), it would be super helpful!

EFP_LAMP.mod (3.1 KB)

Thanks a lot!

2

That is hard to tell but your variables generally do not show a lot of persistence, which is rather unusual. That even applies to the technology shock.