Financial Frictions and Sources of Business Cycle
October 23, 2014
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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.
Subject: Business cycles, Economic growth, Economic theory, Financial crises, Financial frictions, Financial institutions, Labor, Nonbank financial institutions
Keywords: Bayesian Estimation, Business cycles, capital accumulation dynamic, capital producer firm, depreciation rate, DSGE, equity capital, Financial Frictions, Global, inflation rate, interest rate, investment shock, Nonbank financial institutions, producer firm, quality shock, representative capital producer sector, Sources of Business Cycle, WP
Pages:
33
Volume:
2014
DOI:
Issue:
194
Series:
Working Paper No. 2014/194
Stock No:
WPIEA2014194
ISBN:
9781498347792
ISSN:
1018-5941
