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Macroeconomic Effects of Financial Shocks: Comment

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  • Pfeifer, Johannes

Abstract

Urban Jermann and Vincenzo Quadrini (2012) argue that financial shocks are the most important factor driving U.S. business cycles. I show that the construction of their TFP measure suffers from data problems. A corrected TFP measure is able to account for most of the Great Recession. Their estimated DSGE model is also affected by several issues. In a properly reestimated model, marginal efficiency of investment shocks explain most of output volatility, while the contribution of financial shocks is 6.5 percent as opposed to the 46 percent originally reported. Still, financial shocks contribute 2-3 percentage points to the observed GDP drop during the Great Recession.

Suggested Citation

  • Pfeifer, Johannes, 2016. "Macroeconomic Effects of Financial Shocks: Comment," Dynare Working Papers 50, CEPREMAP.
    • Handle: RePEc:cpm:dynare:050
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    References listed on IDEAS

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    1. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
    2. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
    3. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2013. "Is There a Trade-Off between Inflation and Output Stabilization?," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 1-31, April.
    4. Martin Andreasen, 2010. "How to Maximize the Likelihood Function for a DSGE Model," Computational Economics, Springer;Society for Computational Economics, vol. 35(2), pages 127-154, February.
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    Cited by:

    1. Gabrovski, Miroslav & Geromichalos, Athanasios & Herrenbrueck, Lucas & Kospentaris, Ioannis & Lee, Sukjoon, 2025. "The real effects of financial disruptions in a monetary economy," Journal of Monetary Economics, Elsevier, vol. 151(C).
    2. Carnicelli, Lauro, 2018. "Financial shocks and endogenous labor market participation," MPRA Paper 90254, University Library of Munich, Germany.
    3. Thomas Drechsel, 2023. "Earnings-Based Borrowing Constraints and Macroeconomic Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 1-34, April.

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    Keywords

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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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