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Financial Business Cycles

  • Matteo Iacoviello

    (Federal Reserve Board)

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.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1053.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1053
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  1. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599 Elsevier.
  2. Pablo A. Neumeyer & Fabrizio Perri, 2001. "Business Cycles in Emerging Economies:The Role of Interest Rates," Working Papers 01-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  4. Urban Jermann & Vincenzo Quadrini, 2012. "Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(1), pages 238-71, February.
  5. Angeloni, Ignazio & Faia, Ester, 2013. "Capital regulation and monetary policy with fragile banks," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 311-324.
  6. Andreasen, Martin & Ferman, Marcelo & Zabczyk, Pawel, 2012. "The business cycle implications of banks’ maturity transformation," Bank of England working papers 446, Bank of England.
  7. Chiara Forlati & Luisa Lambertini, 2010. "Risky Mortgages in a DSGE Model," Working Papers 201002, Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne, revised Nov 2010.
  8. Skander Van den Heuvel, 2005. "The Welfare Cost of Bank Capital Requirements," 2005 Meeting Papers 880, Society for Economic Dynamics.
  9. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
  10. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco.
  11. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  12. Yuliy Sannikov & Markus K. Brunnermeier, 2010. "A Macroeconomic Model with a Financial Sector," 2010 Meeting Papers 1114, Society for Economic Dynamics.
  13. Vasco Cúrdia & Michael Woodford, 2009. "Conventional and unconventional monetary policy," Staff Reports 404, Federal Reserve Bank of New York.
  14. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
  15. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  16. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  17. 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.
  18. Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2014. "Risk Shocks," American Economic Review, American Economic Association, vol. 104(1), pages 27-65, January.
  19. Urban Jermann & Vincenzo Quadrini, 2012. "Erratum: Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1186-1186, April.
  20. Stephen D. Williamson, 2012. "Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach," American Economic Review, American Economic Association, vol. 102(6), pages 2570-2605, October.
  21. Roger Aliaga‐Díaz & María Pía Olivero, 2010. "Macroeconomic Implications of “Deep Habits” in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1495-1521, December.
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