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Do banking shocks matter for the U.S. economy?

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  • Hirakata, Naohisa
  • Sudo, Nao
  • Ueda, Kozo

Abstract

The quantitative significance of shocks to the financial intermediary (FI) has not received much attention up to now. We estimate a DSGE model with what we describe as chained credit contracts, using Bayesian technique. In the model, credit-constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. We find that the shocks to the FIs' net worth play an important role in the investment dynamics, accounting for 17 percent of its variations. In particular, in the Great Recession, they are the key determinants of the investment declines, accounting for 36 percent of the variations.

Suggested Citation

  • Hirakata, Naohisa & Sudo, Nao & Ueda, Kozo, 2011. "Do banking shocks matter for the U.S. economy?," Globalization Institute Working Papers 86, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:86
    Note: Published as: Hirakata, Naohisa, Nao Sudo and Kozo Ueda (2011), "Do Banking Shocks Matter for the U.S. Economy?" Journal of International Economic Dynamics and Control 35 (12): 2042-2063.
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    References listed on IDEAS

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    1. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2013. "Capital Injection, Monetary Policy, and Financial Accelerators," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 101-145, June.
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    9. Hirakata, Naohisa & Sudo, Nao & Ueda, Kozo, 2011. "Do banking shocks matter for the U.S. economy?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2042-2063.
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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