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The Financial Accelerator in an Estimated New Keynesian Model

Author

Listed:
  • Ian Christensen

    (Bank of Canada)

  • Ali Dib

    (Bank of Canada)

Abstract

This paper estimates and simulates a sticky-price dynamic stochastic general-equilibrium model with a financial accelerator, a la Bernanke, Gertler, and Gilchrist (1999), to assess the importance of the financial accelerator mechanism in fitting the data and its role in the amplification and propagation of transitory shocks. Structural parameters of two models, one with and one without a financial accelerator, are estimated using a maximum-likelihood procedure and post-1979 U.S. data. The estimation and simulation results provide quantitative evidence in favor of the financial-accelerator model. The model without a financial accelerator is statistically rejected in favor of a model with it. The presence of the financial accelerator amplifies and propagates the effects of demand shocks on investment, but it dampens those of supply shocks. However, we find that the importance of the financial accelerator for output fluctuations is relatively minor. (Copyright: Elsevier)

Suggested Citation

  • 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.
  • Handle: RePEc:red:issued:06-87
    DOI: 10.1016/j.red.2007.04.006
    as

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    File URL: http://dx.doi.org/10.1016/j.red.2007.04.006
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    References listed on IDEAS

    as
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    2. Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
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    5. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, March.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Business cycles; Financial accelerator; Investment shocks; Sticky prices;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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    This item is featured on the following reading lists or Wikipedia pages:
    1. Nueva economía keynesiana in Wikipedia Spanish ne '')

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