Financial Frictions and Sources of Business Cycle

Author/Editor:

Marzie Taheri Sanjani

Publication Date:

October 23, 2014

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper estimates a New Keynesian DSGE model with an explicit financial intermediary sector. Having measures of financial stress, such as the spread between lending and borrowing, enables the model to capture the impact of the financial crisis in a more direct and efficient way. The model fits US post-war macroeconomic data well, and shows that financial shocks play a greater role in explaining the volatility of macroeconomic variables than marginal efficiency of investment (MEI) shocks.

Series:

Working Paper No. 2014/194

Subject:

Business cycles Economic growth Economic theory Financial crises Financial frictions Financial institutions Labor Nonbank financial institutions

English

Publication Date:

October 23, 2014

ISBN/ISSN:

9781498347792/1018-5941

Stock No:

WPIEA2014194

Pages:

33

Please address any questions about this title to publications@imf.org