The External Finance Premium and the Macroeconomy: US post-WWII Evidence

Ferre De Graeve

No 84, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of monetary policy transmission. The model-consistent premium for external finance compares well to observable proxies of the premium, such as the high-yield spread. Fluctuations in the external finance premium are primarily driven by investment supply and monetary policy shocks. In terms of recession prediction, false signals of the premium can be given an economic interpretation

Keywords: financial accelerator; external finance premium; DSGE model; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E4 E5 G32 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
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http://repec.org/sce2006/up.3598.1139397023.pdf (application/pdf)

Related works:
Journal Article: The external finance premium and the macroeconomy: US post-WWII evidence (2008)
Working Paper: The external finance premium and the macroeconomy: US post-WWII evidence (2008)
Working Paper: The External Finance Premium and the Macroeconomy: US post-WWII Evidence (2007)
Working Paper: The External Finance Premium and the Macroeconomy: US post-WWII Evidence (2007)
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