IDEAS home Printed from https://ideas.repec.org/a/red/issued/06-87.html
   My bibliography  Save this article

The Financial Accelerator in an Estimated New Keynesian Model

Author

Listed:
  • Ian Christensen

    (Bank of Canada)

  • Ali Dib

    (Bank of Canada)

Abstract

This paper estimates and simulates a sticky-price dynamic stochastic general-equilibrium model with a financial accelerator, a la Bernanke, Gertler, and Gilchrist (1999), to assess the importance of the financial accelerator mechanism in fitting the data and its role in the amplification and propagation of transitory shocks. Structural parameters of two models, one with and one without a financial accelerator, are estimated using a maximum-likelihood procedure and post-1979 U.S. data. The estimation and simulation results provide quantitative evidence in favor of the financial-accelerator model. The model without a financial accelerator is statistically rejected in favor of a model with it. The presence of the financial accelerator amplifies and propagates the effects of demand shocks on investment, but it dampens those of supply shocks. However, we find that the importance of the financial accelerator for output fluctuations is relatively minor. (Copyright: Elsevier)

Suggested Citation

  • 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.
    • Handle: RePEc:red:issued:06-87
    DOI: 10.1016/j.red.2007.04.006
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2007.04.006
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.
    File URL: https://libkey.io/10.1016/j.red.2007.04.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
    2. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
    3. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
    4. Ali Dib, 2003. "An estimated Canadian DSGE model with nominal and real rigidities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(4), pages 949-972, November.
    5. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    6. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    7. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    8. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
    9. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco J., 2005. "Habit formation and the persistence of monetary shocks," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1073-1088, September.
    10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    11. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    12. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
    13. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    14. Camilo E Tovar, 2006. "Devaluations, output and the balance sheet effect: a structural econometric analysis," BIS Working Papers 215, Bank for International Settlements.
    15. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    16. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
    17. 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.
    18. Dib, Ali, 2006. "Nominal rigidities and monetary policy in Canada," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 303-325, June.
    19. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    20. Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2003. "The Great Depression and the Friedman-Schwartz hypothesis," Proceedings, Federal Reserve Bank of Cleveland, pages 1119-1215.
    21. Ichiro Fukunaga, 2002. "Financial Accelerator Effects in Japan's Business Cycles," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    22. 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, March.
    23. Simon Gilchrist, 2004. "Financial Markets and Financial Leverage in a Two-Country World Economy," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 2, pages 027-058, Central Bank of Chile.
    24. Selim Elekdag & Alejandro Justiniano & Ivan Tchakarov, 2006. "An Estimated Small Open Economy Model of the Financial Accelerator," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-2.
    25. Cook, David, 1999. "The liquidity effect and money demand," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 377-390, April.
    26. Mr. Alejandro Justiniano Espigares & Mr. Selim A Elekdag & Mr. Ivan Tchakarov, 2005. "An Estimated Small Open Economy Model of the Financial Accelerator," IMF Working Papers 2005/044, International Monetary Fund.
    27. repec:rus:hseeco:124089 is not listed on IDEAS
    28. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
    2. Roberto Motto & Massimo Rostagno & Lawrence J. Christiano, 2010. "Financial Factors in Economic Fluctuations," 2010 Meeting Papers 141, Society for Economic Dynamics.
    3. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    4. Ali Dib & Mohamed Gammoudi & Kevin Moran, 2008. "Forecasting Canadian time series with the New Keynesian model," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 138-165, February.
    5. Accolley, Delali, 2018. "Accounting for Busines Cycles in Canada: II. The Role of Money," MPRA Paper 85481, University Library of Munich, Germany.
    6. PIROVANO, Mara, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Papers 2013014, University of Antwerp, Faculty of Business and Economics.
    7. Zhang, Tongbin & Hu, Bo, 2011. "House-Price Crash and Macroeconomic Crisis: A Hong Kong Case Study," MPRA Paper 34962, University Library of Munich, Germany.
    8. Thomas Drechsel, 2023. "Earnings-Based Borrowing Constraints and Macroeconomic Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 1-34, April.
    9. Ian Christensen & Paul Corrigan & Caterina Mendicino & Shin‐Ichi Nishiyama, 2016. "Consumption, housing collateral and the Canadian business cycle," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 207-236, February.
    10. Martha R. López P & Norberto Rodríguez N., 2008. "Financial Accelerator Mechanism: Evidence for Colombia," Borradores de Economia 481, Banco de la Republica de Colombia.
    11. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
    12. Airaudo, Marco & Cardani, Roberta & Lansing, Kevin J., 2013. "Monetary policy and asset prices with belief-driven fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1453-1478.
    13. Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 24-41.
    14. Yasuo Hirose, 2008. "Equilibrium Indeterminacy and Asset Price Fluctuation in Japan: A Bayesian Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 967-999, August.
    15. Ali Dib, 2011. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Open Economies Review, Springer, vol. 22(5), pages 769-796, November.
    16. Yasuo Hirose & Takushi Kurozumi, 2012. "Do Investment-Specific Technological Changes Matter For Business Fluctuations? Evidence From Japan," Pacific Economic Review, Wiley Blackwell, vol. 17(2), pages 208-230, May.
    17. Zhang, Hewitt & Hu, Yannan & Hu, Bo, 2012. "House-price crash and macroeconomic crisis: a Hong Kong case study," MPRA Paper 35534, University Library of Munich, Germany.
    18. Falagiarda, Matteo & Saia, Alessandro, 2017. "Credit, Endogenous Collateral and Risky Assets: A DSGE Model," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 125-148.
    19. De Graeve, Ferre, 2008. "The external finance premium and the macroeconomy: US post-WWII evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3415-3440, November.
    20. Benjamin Keen, 2009. "Output, Inflation, and Interest Rates in an Estimated Optimizing Model of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 327-343, April.

    More about this item

    Keywords

    Business cycles; Financial accelerator; Investment shocks; Sticky prices;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Nueva economía keynesiana in Wikipedia Spanish

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:06-87. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.