Financial Frictions in Data: Evidence and Impact

Author/Editor:

Marzie Taheri Sanjani

Publication Date:

December 24, 2014

Electronic Access:

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Summary:

This paper investigates financial frictions in US postwar data to understand the interaction between the real business cycle and the credit market. A Bayesian estimation technique is used to estimate a large Vector Autoregression and New Keynesian models demonstrating how financial shocks can have a large and sluggish impact on the economy. I identify the default risk and the maturity mismatch channels of monetary policy transmission; I further employ a generalized-IRF to establish countercyclicality of risk spreads; and I show that the maturity mismatch shocks produce a stronger impact than the default risk shocks.

Series:

Working Paper No. 2014/238

Subject:

English

Publication Date:

December 24, 2014

ISBN/ISSN:

9781484336557/1018-5941

Stock No:

WPIEA2014238

Pages:

33

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