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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
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  1. Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128.
  2. Age Bakker & Bryan Chapple, 2002. "Advanced Country Experiences with Capital Account Liberalization," IMF Occasional Papers 214, International Monetary Fund.
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  7. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
  8. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  9. 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.
  10. 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.
  11. Bordo, Michael D & Jeanne, Olivier, 2002. "Boom-Busts in Asset Prices, Economic Instability and Monetary Policy," CEPR Discussion Papers 3398, C.E.P.R. Discussion Papers.
  12. 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.
  13. 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.
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