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The financial accelerator and monetary policy rules

  • Gunes Kamber

    ()

  • Christoph Thoenissen

    ()

The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al. (1999), is analyzed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-speci fic volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.

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File URL: https://cama.crawford.anu.edu.au/pdf/working-papers/2011/382011.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-38.

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Length: 23 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:een:camaaa:2011-38
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  1. 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, 03.
  2. Kollmann, Robert & Enders, Zeno & Müller, Gernot J., 2011. "Global banking and international business cycles," European Economic Review, Elsevier, vol. 55(3), pages 407-426, April.
  3. Max Bruche & Carlos González Aguado, 2006. "Recovery Rates, Default Probabilities And The Credit Cycle," Working Papers wp2006_0612, CEMFI.
  4. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
  5. De Graeve Ferre, 2007. "The External Finance Premium and the Macroeconomy: US post-WWII Evidence," Money Macro and Finance (MMF) Research Group Conference 2006 83, Money Macro and Finance Research Group.
  6. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  7. Nolan, Charles & Thoenissen, Christoph, 2008. "Financial shocks and the US business cycle," SIRE Discussion Papers 2008-58, Scottish Institute for Research in Economics (SIRE).
  8. Christopher Martin & Costas Milas, 2011. "Financial Crises and Monetary Policy: Evidence from the UK," Working Paper Series 14_11, The Rimini Centre for Economic Analysis.
  9. 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.
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