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In this paper block Kalman …lters for Dynamic Stochastic General Equilibrium models are presented and evaluated. Our approach is based on the simple idea of writing down the Kalman …lter recursions on block form and appropriately sequencing the operations of the prediction step of the algorithm. It is argued that block …ltering is the only viable serial algorithmic approach to signi…cantly reduce Kalman …ltering time in the context of large DSGE models. For the largest model we evaluate the block …lter reduces the computation time by roughly a factor 2. Block …ltering compares favourably with the more general method for faster Kalman …ltering outlined by Koopman and Durbin (2000) and, furthermore, the two approaches are largely complementary.We would like to thank Mattias Villani, Steve Lionel and Duncan Po. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as re ‡ecting the views of the Executive Board of Sveriges Riksbank. y

Leaning against the wind"-a tighter monetary policy than necessary for stabilizing in-‡ation around the in ‡ation target and unemployment around a long-run sustainable ratehas been justi…ed as a way of reducing household indebtedness. In a recent paper Lars Svensson claims that this policy is counterproductive, since a higher policy rate actually leads to an increase (and not a decrease) in real debt and the debt-to-GDP ratio. In this note we o¤er some comments and extensions to Svensson's analysis. In particular, we take Svensson's debt model to the data and show that it provides an incomplete account of short term debt dynamics. Further, the overall analysis of the e¤ects of monetary policy on debt rests on the rather strong assumption that debt is independent of the policy rate, conditional on housing prices. The policy responses advocated by Svensson can therefore be questioned. More importantly, our exercises with a modi…ed model of debt dynamics enables further understanding of how di¤erent assumptions a¤ect the assessment of the e¤ects of monetary policy on debt.

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