Hence, we sample coefficient of AR (1) errors $\Psi_{kk}$ from trancasted normal such as

$$ \begin{aligned}\Psi_{kk}|R_{kk},\boldsymbol{S}^{T},\boldsymbol{\theta},\boldsymbol{X}^{T}&\sim N(\bar{\Psi}_{kk},\bar{V}_{\Psi_{kk}})\times\mathbf{1}_{\{|\Psi_{kk}|<1\}},\\ where\quad\bar{V}_{\Psi_{kk}}&=\left[(R_{kk}(\boldsymbol{e}^{\prime}_{k,-1}\boldsymbol{e}_{k,-1})^{-1})^{-1}+(\sigma^{2}_{\Psi,0})^{-1}\right]^{-1},\\\bar{\Psi}_{kk}&=\bar{V}_{\Psi_{kk}}\left[(R_{kk}(\boldsymbol{e}^{\prime}_{k,-1}\boldsymbol{e}_{k,-1})^{-1})^{-1}\hat{\Psi}_{kk}+(\sigma^{2}_{\Psi,0})^{-1}\Psi_{0}\right].\end{aligned} $$

### A.4 The Remaining Framework of the DSGE model

In this section, the remaining structure of our DSGE model described in Section 3 is dealt with.

#### A.4.1 Household Sector

There is a continuum of members in the household where the total population measures to one. Within the household, there are fractions of $ f^{E} $ entrepreneurs, $ f^{F} $ financial intermediaries (or “bankers”), and $ 1 - f^{E} - f^{F} $ workers. Entrepreneurs engage in a business where they produce intermediate goods and transfer the net worth back to the household when they exit from the business. Now, each financial intermediary manages a bank where it accepts the deposits from the household sector and lends to entrepreneurs. When financial intermediaries exit from their business, they also transfer their net worth back to the household sector. Finally, remaining fraction of the members of the household becomes workers. Workers supply labor input to earn wage and they transfer their wage earnings to the household each period. Within the household, each member shares the risk perfectly.

The representative household maximizes her expected discounted sum of utility over time and their objective function is specified as follow;

$$ E_{t}\sum_{i=0}^{\infty}\beta^{i}\chi_{t+i}^{c}\left[\frac{\left(c_{t+i}-hC_{t+i-1}\right)^{1-\sigma^{c}}}{1-\sigma^{c}}-\chi_{t+i}^{L}\frac{\left(l_{t+i}\right)^{1+\sigma^{L}}}{1+\sigma^{L}}\right] $$

where $ \beta $ is the discount rate, h is the habit persistence, $ \sigma^{c} $ is the inverse of intertemporal elasticity of substitution, $ c_{t} $ is final goods consumption, $ C_{t-1} $ represents the external habit formation, $ \sigma^{L} $ is the inverse of Frisch labor supply elasticity and $ l_{t} $ is the supply of aggregate labor by workers. Now, there are two structural shocks embedded in the function. $ \chi_{t}^{c} $ represents an intertemporal preference shock, while $ \chi_{t}^{L} $ represents labor disutility shock relative to consumption.

Next, turning to the budget constraint of the representative household, they make a deposit, $ b_{t} $ , at period t and earn real interest rate, $ R_{t}/\pi_{t+1} $ , next period where $ R_{t} $ is risk-free gross nominal interest rate at period t and $ \pi_{t+1} $ is gross inflation rate at period $ t+1 $ . In addition, the household pays lump sum tax of $ \tau_{t} $ to the government. Now, they receive a lump-sum transfer of wage incomes from workers which is expressed as $ \int_{0}^{1}w_{t}(x)l_{t}(x)dx $ , where $ w_{t}(x) $ and $ l_{t}(x) $ are real wage and labor supply by individual worker x, respectively. $ ^{21} $ Finally, the household earns the combined dividend of $ \Xi_{t}^{div} $ from retailers, earns the net transfer of $ \Xi_{t}^{E} $ from entrepreneurs, and the net transfer of $ \Xi_{t}^{F} $ from bankers each period. Thus, the representative household's budget constraint at period t can be expressed as, in real terms, as follow,