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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. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  2. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  3. Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
  4. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  5. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
  6. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  7. 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.
  8. 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.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  10. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," Working Paper 98-10, Federal Reserve Bank of Atlanta.
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Cited by:
  1. 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.
  2. 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.

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