After analyzing the simple monetary model, we move on to the full monetary model of Christiano, Motto and Rostagno (2006). That model incorporates a banking sector and the financial frictions in Bernanke, Gertler and Gilchrist (1999). This model is interesting for two reasons. First, we use the model to investigate the robustness of our findings for boom-busts. We feed the model the same signal about future technology that turns out to be false that we fed to our real business cycle and simple monetary models. We find that the full and simple monetary models behave quite similarly. The second reason it is interesting to study boom-bust episodes.
