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Financial Frictions and Sources of Business Cycle

Marzie Taheri Sanjani

No 2014/194, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates a New Keynesian DSGE model with an explicit financial intermediary sector. Having measures of financial stress, such as the spread between lending and borrowing, enables the model to capture the impact of the financial crisis in a more direct and efficient way. The model fits US post-war macroeconomic data well, and shows that financial shocks play a greater role in explaining the volatility of macroeconomic variables than marginal efficiency of investment (MEI) shocks.

Keywords: WP; interest rate; depreciation rate; DSGE; Bayesian Estimation; Financial Frictions; Sources of Business Cycle; quality shock; producer firm; investment shock; equity capital; capital accumulation dynamic; representative capital producer sector; capital producer firm; inflation rate; Business cycles; Nonbank financial institutions; Global (search for similar items in EconPapers)
Pages: 33
Date: 2014-10-23
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Citations: View citations in EconPapers (5)

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