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Financial Business Cycles

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  • Matteo Iacoviello

    (Federal Reserve Board)

Abstract

recapitalizing or by deleveraging. By deleveraging, banks transform the initial redistribution shock into a classic credit crunch, and amplify and propagate the fi nancial shock to the real economy. In my benchmark experiment, credit losses (that is, a redistribution shock) of about 4% of GDP leads to a 1 percent impact decline on output, whereas they would have no effect on GDP in a model where banks are a veil. Nominal rigidities generate even larger recessions given the same shock.

Suggested Citation

  • Matteo Iacoviello, 2010. "Financial Business Cycles," 2010 Meeting Papers 1053, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:1053
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    More about this item

    JEL classification:

    • 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
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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