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The financial accelerator and the real economy: A small macroeconometric model for Norway with financial frictions

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  • Hammersland, Roger
  • Træe, Cathrine Bolstad

Abstract

This paper studies the salient features of a core macro econometric model that allows for self-reinforcing co-movements between credit, asset prices and real economic activity. In contrast to the economic literature that cultivates highly stylized model representations aimed at illustrating the workings and the implications of such a feature, the model of this paper integrates two mutually reinforcing financial accelerator mechanisms within the framework of a fully-fledged core macroeconomic model. The impulse responses of such a model is in line with the ones typical of SVAR/DSGE models, though the amplitude of shocks is in most cases stronger than the ones pertaining to these kinds of models. This is due to the workings of the financial accelerators that contribute to magnify the effects of shocks to the economy. A forecast comparison undertaken between our model and an alternative macro econometric model without a financial block, suggests that financial feedback mechanisms may be forecast improving.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 36 (2014)
Issue (Month): C ()
Pages: 517-537

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Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:517-537

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: The financial accelerator; Structural vector error correction modelling; Impulse response analysis; Forecasting;

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References

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  1. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
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  12. Kenneth N. Kuttner, 2004. "The role of policy rules in inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 89-112.
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Cited by:
  1. Q. Farook Akram, 2012. "Macro effects of capital requirements and macroprudential policy," Working Paper 2012/21, Norges Bank.
  2. Arvid Raknerud & Bjørn Helge Vatne, 2013. "The relations between bank-funding costs, retail rates, and loan volumes. Evidence form Norwegian microdata," Discussion Papers 742, Research Department of Statistics Norway.

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