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Financial Intermediation And Aggregate Fluctuations: A Quantitative Analysis

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  • Cooper, Russell
  • Ejarque, Jo o
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    Abstract

    We investigate the quantitative behavior of business-cycle models in which the intermediation process acts either as a source of fluctuations or as a propagator of real shocks. In neither case do we find convincing evidence that the intermediation process is an important element of aggregate fluctuations. For an economy driven by intermediation shocks, consumption is not smoother than output, investment is negatively correlated with output, variations in the capital stock are quite large, and interest rates are procyclical. The model economy thus fails to match unconditional moments for the U.S. economy. We also structurally estimate parameters of a model economy in which intermediation and productivity shocks are present, allowing for the intermediation process to propagate the real shock. The unconditional correlations are closer to those observed only when the intermediation shock is relatively unimportant.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

    Volume (Year): 4 (2000)
    Issue (Month): 04 (December)
    Pages: 423-447

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    Handle: RePEc:cup:macdyn:v:4:y:2000:i:04:p:423-447_01

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    Cited by:
    1. Christopher L. House, 2002. "Adverse Selection and the Accelerator," Macroeconomics 0211015, EconWPA.
    2. Aadland, David, 2005. "Detrending time-aggregated data," Economics Letters, Elsevier, vol. 89(3), pages 287-293, December.
    3. V. V. Chari & Patrick Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," Levine's Bibliography 122247000000000560, UCLA Department of Economics.
    4. Ian Christensen & Ali Dib, 2006. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Working Papers 06-9, Bank of Canada.
    5. Russell W. Cooper, 2002. "Estimation and Identification of Structural Parameters in the Presence of Multiple Equilibria," NBER Working Papers 8941, National Bureau of Economic Research, Inc.
    6. Atta-Mensah, Joseph & Dib, Ali, 2008. "Bank lending, credit shocks, and the transmission of Canadian monetary policy," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 159-176.
    7. Roland Meeks, 2006. "Credit Shocks and Cycles: a Bayesian Calibration Approach," Economics Papers 2006-W11, Economics Group, Nuffield College, University of Oxford.
    8. Zanetti, Francesco, 2008. "Labor and investment frictions in a real business cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3294-3314, October.
    9. Dominik Menno & Tommaso Oliviero, 2013. "Financial Intermediation, House Prices, and the Distributive Effects of the U.S. Great Recession," Economics Working Papers ECO2013/05, European University Institute.
    10. Julio J. Rotemberg, 2003. "Stochastic Technical Progress, Smooth Trends, and Nearly Distinct Business Cycles," American Economic Review, American Economic Association, vol. 93(5), pages 1543-1559, December.
    11. Russell W. Cooper, 2005. "Estimation and Identification of Structural Parameters in the Presence of Multiple Equilibria," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 107-130, Winter.

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