The magnitude and Cyclical Behavior of Financial Market Frictions
Abstract
We analyze a new panel data set that includes balance sheet information, measures of expected default risk, and credit spreads on publicly-traded debt for more than 900 firms over the period 1997Q1 through 2003Q3. We obtain precise time-specific estimates of the financial frictions parameter underlying the benchmark financial accelerator model of Bernanke, Gertler, and Gilchrist (1999) and clearly reject the null hypothesis of no credit market imperfections; furthermore, for the expansionary period through mid-2000, these estimates are quite similar to the calibrated values used in previous research. Finally, we find that financial market frictions exhibit strong cyclical pattern, with parameter estimates rising by a factor of two during the latest economic downturn before returning to pre-recession levels in 2003.Download Info
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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 224.Length:
Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:224
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Keywords: perturbation; policy;Other versions of this item:
- Andrew T. Levin & Fabio M. Natalucci & Egon Zakrajsek, 2004. "The magnitude and cyclical behavior of financial market frictions," Finance and Economics Discussion Series 2004-70, Board of Governors of the Federal Reserve System (U.S.).
- Andrew T. Levin & Fabio M. Natalucci, 2005. "The Magnitude and Cyclical Behavior of Financial Market Frictions," 2005 Meeting Papers 443, Society for Economic Dynamics.
- E00 - Macroeconomics and Monetary Economics - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-MFD-2004-08-16 (Microfinance)
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