タイトル：Sources of Great Recession: A Bayesian Approach of a Data Rich DSGE model with Time-Varying-Volatility Shocks
In order to investigate sources of Great Recession (Dec. 2007 to Jun. 2009) of the US economy in late 2000’s, we modify the standard New Keynesian DSGE model by embedding financial frictions in both banking and corporate sectors. Further, the structural shocks in the model are assumed to possess stochastic volatility (SV) with leverage effect. Then, we estimate the model using the Data-Rich estimation method and utilize up to 40 macroeconomic time series in the estimation. In the light of a DSGE model, we suggest the following three empirical evidences in Great Recession; (1) negative bank net worth shock has gradually outspreaded before corporate net worth shock has burst down, (2) the Data-Rich approach and structural shocks with SV evaluate the contribution of corporate net worth shock to the substantial portion of macroeconomic fluctuations after Great Recession, in contrast to a standard DSGE model, and (3) Troubled Asset Relief Program (TARP) would work to bail out financial institutions, whereas balance sheets in corporate sector could not have stopped deteriorating yet. Incorporating time-varying-volatilities of shocks into the DSGE model make their credible bands narrower than half of constant volatilities, implying it is a realistic assumption of dynamics of structural shocks. It is plausible that the tiny volatilities (or the uncertainty) in ordinary times change to extraordinary magnitude at the turning points of business cycles. We also estimate that monetary policy shock has opposite leverage effect of SV which implies tightening policy makes interest rate more volatile.