Estimating contract indexation in a Financial Accelerator Model

Charles Carlstrom, Timothy Fuerst, Alberto Ortiz () and Matthias Paustian

Journal of Economic Dynamics and Control, 2014, vol. 46, issue C, 130-149

Abstract: This paper addresses the positive implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke et al. (1999). The principal conclusions include: (1) the estimated level of indexation is significant, (2) the business cycle properties of the model are significantly affected by this degree of indexation, (3) the importance of investment shocks in the business cycle depends upon the estimated level of indexation, and (4) although the data prefers the financial model with indexation over the frictionless model, they have remarkably similar business cycle properties for non-financial exogenous shocks.

Keywords: Agency costs; Financial accelerator; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2014
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Related works:
Working Paper: Estimating Contract Indexation in a Financial Accelerator Model (2013)
Working Paper: Estimating contract indexation in a financial accelerator model (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:46:y:2014:i:c:p:130-149

DOI: 10.1016/j.jedc.2014.06.009

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