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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)? To answer this question, this paper estimates a dynamic stochastic general equilib- rium model with credit-market imperfections for the Colombian economy using Bayesian methods. The results show that balance-sheet e®ects played an im- portant role in explaining recent Colombian recession; the ¯nancial accelerator mechanism turns out to be quantitatively signi¯cant accounting for about 50 percent 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
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Handle: RePEc:col:000094:004509

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  1. 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.
  2. 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.
  3. Peter N. Ireland, 2002. "Endogenous Money or Sticky Prices?," NBER Working Papers 9390, National Bureau of Economic Research, Inc.
  4. 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.
  5. Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
  6. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
  7. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  8. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  9. Ian Christensen & Ali Dib, 2006. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Working Papers 06-9, Bank of Canada.
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Cited by:
  1. José Eduardo G�mez-Gonz�lez, 2012. "Failing and Merging as Competing Alternatives during Times of Financial Distress: Evidence from the Colombian Financial Crisis," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 655-671, October.
  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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