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Financial frictions and the real economy

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  • Pietrunti, Mario

Abstract

This paper investigates in a non-linear setting the impact on the real economy of frictions stemming from the financial sector. We develop a medium scale DSGE model with a banking sector where an occasionally binding constraint on banks’ capital induces a relevant non-linearity. The model - estimated on Italian data from 1999 to 2015 via a likelihood-free method - is able to generate business cycle asymmetries as in actual data that cannot replicated by linear models. Lastly, the role of macroprudential policies in smoothing the cycle is discussed JEL Classification: C15, E32, E44, G01

Suggested Citation

  • Pietrunti, Mario, 2017. "Financial frictions and the real economy," ESRB Working Paper Series 41, European Systemic Risk Board.
  • Handle: RePEc:srk:srkwps:201741
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    File URL: https://www.esrb.europa.eu//pub/pdf/wp/esrbwp41.en.pdf
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    References listed on IDEAS

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    11. Li, Shuyun May & Dressler, Scott, 2011. "Business cycle asymmetry via occasionally binding international borrowing constraints," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 33-41, March.
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    Cited by:

    1. E. Jondeau & J-G. Sahuc, 2018. "A General Equilibrium Appraisal of Capital Shortfall," Working papers 668, Banque de France.

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    More about this item

    Keywords

    financial frictions; likelihood-free estimation; non-linear DSGE Models;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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

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