Published in:University of Milan Bicocca Department of Economics, Management and Statistics Working Paper ; No. 286
Extent:
1 Online-Ressource (48 p)
Language:
English
DOI:
10.2139/ssrn.2526800
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 18, 2014 erstellt
Description:
We estimate a medium scale DSGE model for the Euro Area to gain intuition on the importance of Limited Asset Market Participation (LAMP). Our results suggest that LAMP is sizeable (39% of households over the 1993-2012 sample) and important to understand EMU business cycle, especially, in the light of the recent financial crisis. In comparison with the representative households counterpart, the LAMP model is preferred on the grounds of both the Bayes factor and the average forecasting performance. Given the tighter credit standards we might expect in the near future, the high proportion of LAMP households is likely to remain an important feature of EMU. We also find that the LAMP model leads to conclusions about the main determinants of EMU business cycle that are substantially different from those obtained under the representative agent hypothesis. Given these results, the LAMP hypothesis should be part and parcel of empirical DSGE models of the Euro area