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The Financial Accelerator in an Estimated New Keynesian Model

Ian Christensen () and Ali Dib

Review of Economic Dynamics, 2008, vol. 11, issue 1, 155-178

Abstract: This paper estimates and simulates a sticky-price dynamic stochastic general-equilibrium model with a financial accelerator, a la Bernanke, Gertler, and Gilchrist (1999), to assess the importance of the financial accelerator mechanism in fitting the data and its role in the amplification and propagation of transitory shocks. Structural parameters of two models, one with and one without a financial accelerator, are estimated using a maximum-likelihood procedure and post-1979 U.S. data. The estimation and simulation results provide quantitative evidence in favor of the financial-accelerator model. The model without a financial accelerator is statistically rejected in favor of a model with it. The presence of the financial accelerator amplifies and propagates the effects of demand shocks on investment, but it dampens those of supply shocks. However, we find that the importance of the financial accelerator for output fluctuations is relatively minor. (Copyright: Elsevier)

Keywords: Business cycles; Financial accelerator; Investment shocks; Sticky prices (search for similar items in EconPapers)
JEL-codes: E30 E32 E37 E44 E50 (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1016/j.red.2007.04.006

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