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Financial Accelerator Mechanism: Evidence for Colombia

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  • Martha R. López

    ()

  • Norberto Rodríguez N.

    ()

Abstract

Colombia experienced a deep recession in 1999-2003. Growth slowed by 4.2%,and investment by 34.6%. Was the severity of the recession due to a ¯nan-cial accelerator mechanism µa la Bernanke, Gertler, and Gilchrist (1999)? Toanswer this question, this paper estimates a dynamic stochastic general equilib-rium model with credit-market imperfections for the Colombian economy usingBayesian methods. The results show that balance-sheet e®ects played an im-portant role in explaining recent Colombian recession; the ¯nancial acceleratormechanism turns out to be quantitatively signi¯cant accounting for about 50percent of the total reduction in output after a monetary policy tightening.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 004509.

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Length: 27
Date of creation: 30 Jan 2008
Date of revision:
Handle: RePEc:col:000094:004509

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Keywords: DSGE modelling; Financial Accelerator; Bayesian Estimation.;

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  1. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," Working Paper 98-10, Federal Reserve Bank of Atlanta.
  2. Peter N. Ireland, 2001. "Endogenous Money or Sticky Prices?," Boston College Working Papers in Economics 499, Boston College Department of Economics.
  3. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  4. Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
  5. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  6. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  8. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  9. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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Cited by:
  1. Gelain, Paolo, 2010. "The external finance premium in the Euro area: A dynamic stochastic general equilibrium analysis," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 49-71, March.
  2. Jose Eduardo Gómez-González & Juan carlos Mendoza, . "Failing and Merging as Competing Alternatives during Times of Financial Distress: Evidence from the Colombian Financial Crisis," Borradores de Economia 588, Banco de la Republica de Colombia.

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