Financial Frictions in Data: Evidence and Impact
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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:
Bond yields Credit Debt default Econometric analysis Economic theory External debt Financial frictions Financial institutions Impulse response analysis Money Vector autoregression
English
Publication Date:
December 24, 2014
ISBN/ISSN:
9781484336557/1018-5941
Stock No:
WPIEA2014238
Pages:
33
Please address any questions about this title to publications@imf.org