The external finance premium and the macroeconomy: US post-WWII evidence

Ferre De Graeve

No 809, Working Papers from Federal Reserve Bank of Dallas

Abstract: The central variable of theories of financial frictions--the external finance premium--is unobservable. This paper distils the external finance premium from a DSGE model estimated on U.S. macroeconomic data. Within the DSGE framework, movements in the premium can be given an interpretation in terms of shocks driving business cycles. A key result is that the estimate--based solely on nonfinancial macroeconomic data--picks up over 70 percent of the dynamics of lower grade corporate bond spreads. The paper also identifies a gain in fitting key macroeconomic aggregates by including financial frictions in the model and documents how shock transmission is affected.

Keywords: Financial markets; Corporate bonds; Corporations - Finance (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
Note: Published as: De Graeve, Ferre (2008), "The External Finance Premium and the Macroeconomy: US Post–WWII Evidence," Journal of Economic Dynamics and Control 32 (1): 3415-3440.
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Citations: View citations in EconPapers (110)

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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 (2007)
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 (2006)
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