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Do banking shocks matter for the U.S. economy?

  • Hirakata, Naohisa
  • Sudo, Nao
  • Ueda, Kozo

The quantitative significance of shocks to the financial intermediary (FI) has not received much attention up to now. We estimate a DSGE model with what we describe as chained credit contracts, using Bayesian technique. In the model, credit-constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. We find that the shocks to the FIs' net worth play an important role in the investment dynamics, accounting for 17% of its variations. In particular, in the Great Recession, they are the key determinants of the investment declines, accounting for 36% of the variations.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 12 ()
Pages: 2042-2063

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:12:p:2042-2063
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2013. "Capital Injection, Monetary Policy, and Financial Accelerators," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 101-145, June.
  2. Ferre De Graeve, 2008. "The external finance premium and the macroeconomy: US post-WWII evidence," Working Papers 0809, Federal Reserve Bank of Dallas.
  3. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2009. "Chained Credit Contracts and Financial Accelerators," IMES Discussion Paper Series 09-E-30, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Peter N. Ireland, 2001. "Endogenous Money or Sticky Prices?," Boston College Working Papers in Economics 499, Boston College Department of Economics.
  5. Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October.
  6. Jermann, Urban & Quadrini, Vincenzo, 2009. "Macroeconomic Effects of Financial Shocks," CEPR Discussion Papers 7451, C.E.P.R. Discussion Papers.
  7. Césaire Meh & Kevin Moran, 2004. "Bank Capital, Agency Costs, and Monetary Policy," Working Papers 04-6, Bank of Canada.
  8. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
  9. Meier, André & Müller, Gernot J., 2005. "Fleshing out the monetary transmission mechanism: output composition and the role of financial frictions," Working Paper Series 0500, European Central Bank.
  10. David Aikman & Matthias Paustian, 2006. "Bank capital, asset prices and monetary policy," Bank of England working papers 305, Bank of England.
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