The empirical performance of the financial accelerator since 2008

Gregor Boehl and Felix Strobel

Journal of Economic Dynamics and Control, 2024, vol. 167, issue C

Abstract: We evaluate the empirical performance of financial frictions à la Bernanke et al. (1999) during and after the Global Financial Crisis. We document that in an ex-post analysis based on nonlinear Bayesian methods, these frictions do not improve the standard medium-scale DSGE model's ability to explain the macroeconomic dynamics during the Great Recession. The reason is that in the estimated model with financial frictions, the drastic post-2008 collapse of investment causes firms' leverage to decline. Taking the model at face value, this would trigger a narrowing of the credit spread, contradicting the observed persistently large credit spread throughout the post-2008 period. Additionally, the estimated model attributes only a minor role to risk shocks à la Christiano et al. (2014). These findings are confirmed independently for US and euro area data.

Keywords: Financial frictions; Great recession; Business cycles; Effective lower bound; Nonlinear Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C63 E31 E32 E44 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:167:y:2024:i:c:s0165188924001192

DOI: 10.1016/j.jedc.2024.104927

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