In a recent paper, Gertler, Gilchrist and Natalucci (2006) report that the financial accelerator mechanism may account for about half of the fall in output and investment observed during the Korean crisis of 1997-1998. Using the business cycle accounting method of Chari, Kehoe and McGrattan (2006a), this paper finds that such a result is very sensitive to the value of Tobin’s q elasticity. The implication is that the adjustment cost function may be crucial in terms of the relative importance of distortions for explaining business cycle fluctuations.
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Paper provided by Banco de México in its series Working Papers with number
2007-06.
Find related papers by JEL classification: E1 - Macroeconomics and Monetary Economics - - General Aggregative Models E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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