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Financial Frictions, Financial Shocks, and Aggregate Volatility

Cristina Fuentes-Albero ()

No 18, Dynare Working Papers from CEPREMAP

Abstract: I revisit the Great Inflation and the Great Moderation for nominal and real variables. I document that while financial price variables follow such a pattern; financial quantity variables experience a continuous immoderation. A model with financial frictions and financial shocks allowing for structural breaks in the size of shocks and the institutional framework is estimated. The paper shows that while the Great Inflation was driven by bad luck, the Great Moderation is mostly due to better financial institutions. Financial shocks arise as relevant drivers of US business cycle fluctuations.

Keywords: Great Inflation; Great Moderation; immoderation; financial frictions; financial shocks; structural breaks; Bayesian methods (search for similar items in EconPapers)
JEL-codes: E32 E44 C11 C13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2012-12
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Related works:
Working Paper: Financial Frictions, Financial Shocks, and Aggregate Volatility (2018) Downloads
Working Paper: Financial Frictions, Financial Shocks, and Aggregate Volatility (2016) Downloads
Working Paper: Financial Frictions, Financial Shocks, and Aggregate Volatility Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:dynare:018

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