The amplifier/divider mechanism of the financial cycle

Omar Chafik

International Economics and Economic Policy, 2020, vol. 17, issue 2, No 2, 363-380

Abstract: Abstract The financial cycle can play a decisive role in the transmission of monetary policy decisions. The impact of these decisions is amplified when the financial cycle is booming, and it is compressed when this cycle is busting. Considering this amplifier/divider mechanism in a semi-structural NKM, estimated for the US economy using Bayesian techniques, confirms this conclusion and improves the decision of raising or lowering the interest rate.

Keywords: Financial cycle; Monetary policy; New Keynesian model; Output gap; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C32 E30 E50 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10368-019-00448-z

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