Abstract:
Dynamic stochastic general equilibrium models are an important tool for the study of a number of theoretical and practical issues in the field of macroeconomics. Due to the fact that the financial system is an important mechanism of transmission and the source of shocks in the economy, more and more models of this class include a description of the monetary relations. This review concerns credit and banking system modeling approaches within the framework of DSGE models. The first direction of the development of the DSGE models with financial system is the modeling of the financial accelerator effect. Financial accelerator is the financial mechanism that amplifies economy shocks. Financial accelerator mechanism makes possible to explain the persistence of the business cycles. The review observes two main ways of modeling the financial accelerator effect: through the external finance premium mechanism and through collateral constraint. The second direction of the development of the DSGE models with financial system is banking sector modeling. We describe purposes and mathematical methods of key papers with the banking sector description. Also we single out models in which lender carries systemic risk.
