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The magnitude and Cyclical Behavior of Financial Market Frictions

Eric Swanson () and Andrew Levin ()

No 224, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: We analyze a new panel data set that includes balance sheet information, measures of expected default risk, and credit spreads on publicly-traded debt for more than 900 firms over the period 1997Q1 through 2003Q3. We obtain precise time-specific estimates of the financial frictions parameter underlying the benchmark financial accelerator model of Bernanke, Gertler, and Gilchrist (1999) and clearly reject the null hypothesis of no credit market imperfections; furthermore, for the expansionary period through mid-2000, these estimates are quite similar to the calibrated values used in previous research. Finally, we find that financial market frictions exhibit strong cyclical pattern, with parameter estimates rising by a factor of two during the latest economic downturn before returning to pre-recession levels in 2003.

Keywords: perturbation; policy (search for similar items in EconPapers)
JEL-codes: E00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mfd
Date: 2004-08-11
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http://repec.org/sce2004/up.1465.1077906175.pdf (application/pdf)

Related works:
Working Paper: The Magnitude and Cyclical Behavior of Financial Market Frictions (2005)
Working Paper: The magnitude and cyclical behavior of financial market frictions (2004) Downloads
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