Financial Frictions and Sources of Business Cycle

ByMarzie Taheri Sanjani

October 23, 2014

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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.

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:
https://doi.org/10.5089/9781498347792.001
Issue:
194
Series:
Working Paper No. 2014/194
Stock No:
WPIEA2014194
ISBN:
9781498347792
ISSN:
1018-5941

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