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Financial Acceleration of Booms and Busts

  • Jan Kakes

    (De Nederlandsche Bank, Financial Stability Division, P.O. Box 98, NL-1000 AB Amsterdam/Niederlande)

  • Cees Ullersma

    (De Nederlandsche Bank, Economics and Research Division, P.O. Box 98, NL-1000 AB Amsterdam/Niederlande)

For a panel of 20 industrialized countries from 1970 through 2002, we analyze the role of financial variables in economic cycles. We focus on equity busts, which are considered a proxy for downward revisions of economic prospects. Particularly in the second half of our sample, we find that financial factors have explanatory power. This suggests that the financial accelerator has become more important over time. In this environment, the typical bust is followed by a substantial reduction in the nominal policy interest rate.

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Article provided by Credit and Capital Markets in its journal Kredit und Kapital.

Volume (Year): 43 (2010)
Issue (Month): 3 ()
Pages: 321–337

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Handle: RePEc:kuk:journl:v:43:y:2010:i:3:p:321-337
Contact details of provider: Web page: http://www.credit-and-capital-markets.de/

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  1. Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc.
  2. Age Bakker & Bryan Chapple, 2002. "Advanced Country Experiences with Capital Account Liberalization," IMF Occasional Papers 214, International Monetary Fund.
  3. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  4. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
  5. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  6. Mark Gertler & Cara S. Lown, 2000. "The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications," NBER Working Papers 7549, National Bureau of Economic Research, Inc.
  7. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  8. Jan Kakes & Cees Ullersma, 2003. "Financial stability in low-inflation environments," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 355-367 Bank for International Settlements.
  9. Asea, P.K. & Blomberg, S.B., 1997. "Lending Cycles," Papers 97-01, Wellesley College - Department of Economics.
  10. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
  11. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  12. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
  13. Ashoka Mody & Mark P. Taylor, 2003. "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 3.
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