Document Type

Working Paper

Publication Date





This paper discusses whether the parameter invariance problem as in Lucas (1976) applies to the standard new Keynesian DSGE model when the credit channel is left out from its structure. We simulate a financial crisis in which the credit market friction is positive and we shift the monetary policy to stimulate the economy. We evaluate the cost of omitting the credit channel by examining the changes of the estimated model parameters and by using policy outcomes. We find that although some parameters incur nontrivial changes after the policy shift, overall these parameter changes have little impact on the conduct of monetary policy.


NOTE: This is an unpublished working paper of Takeshi Yagihashi.


0000-0001-9916-6008 (Takeshi Yagihashi)

Original Publication Citation

Yagihashi, T. (2013). The Cost of Omitting Credit Channel in DSGE Model. Economics. Old Dominion University. Retrieved from