A Financial Market Segmented New-Keynesian Macro Model

Sammanfattning: This essay complements the monetary literature by estimation and simulation of a New-Keynesian macro model featuring financial market frictions and long bond portfolio policy. The model is an extended version of the canonical three-equation New-Keynesian model with segmented financial markets distinguishing the short-term money market from the long-term bond market. Our data is U.S. quarterly data spanning between 1996:Q4-2019:Q3. The analysis yields the following findings. The structural estimation delivers a high parameter steering the Fed's easing on the bond market. Credit shocks boost output, prices and short-term interest rates in simulations of the DSGE model, consistent with empirical evidence from our VAR. The impact of conventional monetary policy shocks is generally stronger than QE shocks.