Contents -- I. Introduction -- II. Benchmark Model -- A. Background -- B. The Specification of the Model -- B.1 Observable variables and data definitions -- B.2 Stochastic processes and model definitions -- B.3 Behavioral equations -- B.4 Cross correlations of disturbances -- III. Extending the Model to Include Financial-Real Linkages -- A. Background -- B. Model Specification Incorporating the US Bank Lending Tightening Variable -- IV. Confronting the Model with the Data -- A. Bayesian Estimation -- B. Results -- B.1 Estimates of output gap -- B.2 Estimates of coefficients -- B.3 Estimates of standard deviation of structural shocks and cross correlations -- B.4 RMSEs -- B.5 Impulse response functions -- B.6 Historical variance decomposition -- V. Concluding Remarks -- References -- Appendix Tables -- 1. GPM Data Definitions -- 2. Trade Matrix (Average 2001-2007, in percent) -- Text Tables -- 1. Results from Posterior Maximization -- 2. Results from Posterior Parameters (Standard Deviation of Structural Shocks) -- 3. Results from Posterior Parameters (Correlation of Structural Shocks) -- 4. Root Mean Squared Errors -- Figures -- 1. Output Gap in LA5 -- 2. Estimated Parameters in the Output Gap Equation -- 3. Estimated Parameters in the Inflation Equation -- 4. Estimated Parameters in the Monetary Policy Rule -- 5. Domestic Demand Shock -- 6. Domestic Price Shock -- 7. Demand Shock in the US -- 8. BLT Shock in the US -- 9. Historical Decomposition of Inflation 2004-08.