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Financial Innovations and Macroeconomic Volatility

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  • Urban Jermann
  • Vincenzo Quadrini

Abstract

The volatility of US business cycles has declined during the last two decades. During the same period the financial structure of firms has become more volatile. In this paper we develop a model in which financial factors play a key role in generating economic fluctuations. Innovations in financial markets allow for greater financial flexibility and generate a lower volatility of output together with a higher volatility in the financial structure of firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12308.

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Date of creation: Jun 2006
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Publication status: published as Urban Jermann & Vincenzo Quadrini, 2006. "Financial innovations and macroeconomic volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
Handle: RePEc:nbr:nberwo:12308

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