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Financial frictions and stabilisation policies

Author

Listed:
  • Saira Tufail
  • Ather Maqsood Ahmed

Abstract

This research examines the implications of price and quantity-based financial frictions for the macroeconomic dynamics and effectiveness of stabilisation policies in Pakistan. Price and quantity-based financial frictions are captured through external finance premium and collateral constraint, respectively. Results from calibrating a new Keynesian dynamic stochastic general equilibrium model showed that quantity-based frictions generate strong financial accelerator mechanism and impede the stabilisation through monetary, fiscal and macroprudential policies. The effective management through stabilisation policies requires the rigorous handling of quantitative financial frictions.

Suggested Citation

  • Saira Tufail & Ather Maqsood Ahmed, 2024. "Financial frictions and stabilisation policies," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 14(1), pages 43-82.
    • Handle: RePEc:ids:afasfa:v:14:y:2024:i:1:p:43-82
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