How Important are Financial Shocks for the Canadian Business Cycle?
No 276, TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University
In this paper, we investigate the importance of financial shocks for the Canadian business cycle employing the financial friction DSGE framework following Bernanke, Gertler, and Gilchrist (1999) with an extension of a small-open economy feature. In particular, we explored the importance of an external finance premium shock and an aggregate net worth shock. In order to identify financial shocks in the model, we utilized financial data in estimating our model. Our variance decomposition results showed that the external finance premium shock to account about 7.5% and the aggregate net worth shock to account about 5.6% of the variance of the business fixed investment in Canada. Also, our historical decomposition results and smoothing of the various financial variables showed that data on corporate leverage ratio to be particularly useful in identifying the financial shocks in the model. Finally, when the financial shocks were present in the model, relative importance of the investment- specific technology shock was substantially subdued that it accounted for only 17% of the variance of the business fixed investment - much lower than the results reported in the former empirical studies.
Pages: 32 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:toh:tergaa:276
Access Statistics for this paper
More papers in TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University Contact information at EDIRC.
Bibliographic data for series maintained by Tohoku University Library ().