Research Workshop on “Financial Frictions in DSGE Models”

Date: March 27 – 29, 2023

Instructor: Dr. Husnu Dalgic (University of Mannheim)


  • Financial friction models
  • Integrating financial frictions in DSGE models
  • Uncertainty and Macro outcomes
  • Asset markets, incomplete insurance, and inequality
  • Financial Crises and Macro
  • Financial frictions and endogenous growth: Hysteresis


DSGE models with financial frictions have become the standard in academia as well as in policy institutions.  This course is designed to familiarize students with the literature on financial frictions in macroeconomics and cutting-edge methods. We will start with a brief introduction to DSGE models and solution methods. We will then incorporate financial frictions into DSGE models to see (i) how financial shocks are transmitted to the economy and (ii) how non-financial shocks are amplified via financial accelerator. Next we will cover models of financial crises and how to integrate them into DSGE framework. We will also explore how financial frictions interact with topics like economic growth and inequality.

Prior knowledge of DSGE models and Matlab/Dynare would be helpful but not required.

This course is open for advanced masters students and PhD candidates. If you would like to participate, please send a short email describing your motivation, together with your CV to naira.kotb(at) before 15.03.2023. You will be notified of your acceptance. 

The course will be held in a hybrid-mode. External participation is only virtually possible. No financial support is available.

This workshop is carried out in cooperation with the Bamberg Graduate School on Social Sciences (BAGSS). An overview of its courses, colloquia and guest lectures can be found here.

About the Instructor:

Dr. Husnu Dalgic is a postdoctoral researcher at University of Mannheim. His research interests are international macroeconomics and finance. He uses DSGE models with financial frictions to answer questions on financial dollarization, FX interventions and financial crises. Dr Dalgic holds a PhD degree from Northwestern University.


Monday, 27.03.

11:15 - 12:45 Introduction to DSGE models and solution methods

12:45 - 1:45   Lunch break

1:45 - 3:15     Canonical financial friction models I

3:15 - 3:30     Coffee break

3:30 - 5:00     Canonical financial friction models II

6:00                Welcome Dinner

Tuesday, 28.03.

1:00 - 2:00 Lunch Time Talk

2:00 - 3:30 Incomplete insurance and inequality

3:30 - 3:45 Coffee break

3:45 - 5:15 Financial Crises and DSGE models I

5:15 - 5:30 Coffee break

5:30 - 7:00 Financial Crises and DSGE models II

Wednesday, 29.03.

3:30 - 5:00 Financial frictions and endogenous growth

5:00            Keynote speech


Allen, Franklin, and Douglas Gale. 1998. ‘Optimal Financial Crises’. The Journal of Finance 53 (4): 1245–84.

Bernanke, Ben S, Mark Gertler, and Simon Gilchrist. 1999. ‘The Financial Accelerator in a Quantitative Business Cycle Framework’. In Handbook of Macroeconomics, edited by J B Taylor and M Woodford, 1:1341–93. Handbook of Macroeconomics. Elsevier.

Chari, V. V., and Ravi Jagannathan. 1988. ‘Banking Panics, Information, and Rational Expectations Equilibrium’. The Journal of Finance 43 (3): 749–61.

Christiano, Lawrence, Husnu Dalgic, and Xiaoming Li. 2022. ‘Modelling the Great Recession as a Bank Panic: Challenges’. Economica 89 (S1): S200–238.

Christiano, Lawrence J, Roberto Motto, and Massimo Rostagno. 2014. ‘Risk Shocks’. American Economic Review 104 (1): 27–65.

Di Tella, Sebastian, and Robert Hall. 2022. ‘Risk Premium Shocks Can Create Inefficient Recessions’. The Review of Economic Studies 89 (3): 1335–69.

Gale, Douglas, and Martin Hellwig. 1985. ‘Incentive-Compatible Debt Contracts: The One-Period Problem’. Review of Economic Studies 52 (4): 647–63.

Gertler, Mark, and Peter Karadi. 2012. ‘Large Scale Asset Purchases as a Tool of Monetary Policy The Model : Key Ingredients’, no. February: 1–35.

Gertler, Mark, and Nobuhiro Kiyotaki. 2015. ‘Banking, Liquidity, and Bank Runs in an Infinite Horizon Economy’. American Economic Review 105 (7): 2011–43.

Gertler, Mark, Nobuhiro Kiyotaki, and Andrea Prestipino. 2020. ‘A Macroeconomic Model with Financial Panics’. The Review of Economic Studies 87 (1): 240–88.

Gilchrist, Simon, and Egon Zakrajšek. 2012. ‘Credit Spreads and Business Cycle Fluctuations’. American Economic Review 102 (4): 1692–1720.

Holmstrom, Bengt, and Jean Tirole. 1997. ‘Financial Intermediation, Loanable Funds, and the Real Sector’. The Quarterly Journal of Economics112 (3).

Queralto, Albert. 2020. ‘A Model of Slow Recoveries from Financial Crises’. Journal of Monetary Economics 114 (October): 1–25.