Download or read book Financial Frictions and Sources of Business Cycle written by Marzie Taheri Sanjani and published by International Monetary Fund. This book was released on 2014-10-23 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates a New Keynesian DSGE model with an explicit financial intermediary sector. Having measures of financial stress, such as the spread between lending and borrowing, enables the model to capture the impact of the financial crisis in a more direct and efficient way. The model fits US post-war macroeconomic data well, and shows that financial shocks play a greater role in explaining the volatility of macroeconomic variables than marginal efficiency of investment (MEI) shocks.
Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
Download or read book Output Gap in Presence of Financial Frictions and Monetary Policy Trade offs written by Francesco Furlanetto and published by International Monetary Fund. This book was released on 2014-07-18 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
Download or read book Financial Frictions Business Cycles and Optimal Monetary Policy written by Zulfiqar Hyder and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The great recession that started in 2007, has not only changed the perspective of the macroeconomic literature about the role of financial frictions within the canonical New Keynesian (henceforth, NK) monetary models but also has rekindled the debate about sources of business cycle fluctuations. This dissertation, comprising of three self-contained essays, makes theoretical and empirical contributions to the emerging strands of literature incorporating financial frictions in the NK monetary models. The first essay (Chapter 2) of this dissertation extends traditional optimal monetary policy analysis to NK models with capital and financial frictions. In the case of a negative productivity shock, the chapter finds that: 1) a standard inflation targeting rule dominates the Taylor rule in both NK models without capital and with capital as it approximates the welfare level associated with the Ramsey policy; 2) in the NK model with capital and with financial frictions, the relative performance of the economy under standard inflation targeting is much better compared to alternative policies because it approximates Ramsey monetary policy. In the case of a financial shock, the chapter shows that the inflation targeting rule provides a welfare level that is close to the welfare level achieved under optimal monetary policy under commitment. In addition, Ramsey policy under commitment performs well in response to a financial shock, compared to alternative monetary policy regimes, by aggressively minimizing the impact of financial constraints on the interest rate spread. The second essay (Chapter 3) estimates the importance of financial shocks in business cycle fluctuations for the US economy using structural VAR models. In that chapter, financial and non-financial shocks are identified with a minimum set of sign restrictions based on the two competing NK models: the standard NK model augmented with a financial accelerator and the NK model augmented with financial intermediaries. Estimation results show that a financial shock, emanating both from entrepreneur's net worth and financial intermediaries net worth, is prominent in explaining fluctuations in real output and interest rate spread. As far as the relative importance of these two financial shocks is concerned, the following results stand out. A financial shock related to the demand side is relatively the major driver of output fluctuations in both time horizons while financial shocks related to financial intermediaries explain a moderate variation in output fluctuations in both time horizons. In addition, financial shocks related to financial intermediaries account for a relatively larger share of interest rate spread fluctuations at both time horizons compared to a financial shock related to the demand side. The third essay (Chapter 4) extends Gertler and Karadi's model (2011) into a two-sector setting. The Two-Sector Financial Accelerator model not only helps to incorporate the differences in the leverage ratios of commercial and investment banks but also introduces additional shocks that capture some features of the sub-prime financial crisis in the simulated economy. The results also show that output recovery would remain slow in the simulated economy as long as the relative price of non-consumption goods is not recovered to its trend.
Download or read book Business Cycles and Financial Crises written by A. W. Mullineux and published by Bookboon. This book was released on 1990 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Financial Frictions and Sources of Business Cycle written by Marzie Taheri Sanjani and published by International Monetary Fund. This book was released on 2014-10-23 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates a New Keynesian DSGE model with an explicit financial intermediary sector. Having measures of financial stress, such as the spread between lending and borrowing, enables the model to capture the impact of the financial crisis in a more direct and efficient way. The model fits US post-war macroeconomic data well, and shows that financial shocks play a greater role in explaining the volatility of macroeconomic variables than marginal efficiency of investment (MEI) shocks.
Download or read book Uncertainty Financial Frictions and Nominal Rigidities A Quantitative Investigation written by Ambrogio Cesa-Bianchi and published by International Monetary Fund. This book was released on 2017-09-29 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro uncertainty) in a financial accelerator DSGE model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time series properties of macro and micro uncertainty are estimated using U.S. aggregate and firm-level data, respectively. While surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, these account for a small (non-trivial) share of output volatility.
Download or read book Essays on Market Frictions Economic Shocks and Business Fluctuations written by Seungho Nah and published by . This book was released on 2010 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: In the first essay, 'Financial Frictions, Intersectoral Adjustment Costs, and News-Driven Business Cycles', I show that an RBC model with financial frictions and intersectoral adjustment costs can generate sizable boom-bust cycles and plausible responses of stock prices in response to a news shock. Booms in the labor market, which make it possible for both consumption and investment to increase in response to positive news, are caused through two channels: the increases in value of marginal product of labor and the increases in value of collateral. Both of these channels enable firms to hire more workers. Intersectoral adjustment costs contribute to both channels by increasing the relative price of output and capital during expansions. Financial frictions enter in the forms of collateral constraints on firms, which influence the latter channel, and the financial accelerator mechanism driven by agency costs, which amplifies all the key variables. My model differs from previous studies in its ability to generate boom-bust cycles without restricting the functional form of consumption in household preferences and without requiring investment adjustment costs, variable capital utilization, or any nominal rigidities. In the second essay, 'Financial and Real Frictions as Sources of Business Fluctuations', I show that a negative shock to a financial or real friction in an economy can generate quantitatively significant and persistent recessions, even without a decrease in exogenous aggregate total factor productivity in a heterogeneous agents DSGE model. The increase in uncertainty that a firm is facing when it makes capital adjustment, however, is found to have a limited or dubious influence on economic activities. The roles of collateral constaints as a financial friction and nonconvex capital adjustment costs as a real friction in aggregate fluctuations are examined in this propagation mechanism. When these frictions become strengthened, the degree of capital misallocation is intensified, which leads to a drop of endogenous aggregate total factor productivity. As agents expect that the return to investment and endogenous TFP decrease, they reduce aggregate investment sharply, which also leads to a drop in employment. Interruption of efficient resource allocation coming from these two frictions is found out to be enough to generate a large and persistent aggregate flucutations even without introducing heterogeneity in firm-level productivity.
Download or read book Modern Business Cycle Theory written by Robert J. Barro and published by . This book was released on 1989 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt: The new classical approach to macroeconomics, which assumes that people gather and use economic information efficiently, has been the most important theoretical advance since the Keynesian revolution of the 1930s. This book surveys the major contributions of the "second generation" of proponents of the new classical approach, emphasizing real business cycle theories and applying them to a variety of phenomena. The chapters include expositions of growth theory, real models of business fluctuations, the informational role of prices, consumption, fiscal policy, rules versus discretion in monetary policy, time consistency and policy, and monetary models. Although the chapters are aimed at advanced undergraduate- and graduate-level students, they will also be of interest to researchers who are looking for a compact and original exposition of the new classical macroeconomics.
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Business Cycles written by Victor Zarnowitz and published by University of Chicago Press. This book was released on 2007-11-01 with total page 613 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume presents the most complete collection available of the work of Victor Zarnowitz, a leader in the study of business cycles, growth, inflation, and forecasting.. With characteristic insight, Zarnowitz examines theories of the business cycle, including Keynesian and monetary theories and more recent rational expectation and real business cycle theories. He also measures trends and cycles in economic activity; evaluates the performance of leading indicators and their composite measures; surveys forecasting tools and performance of business and academic economists; discusses historical changes in the nature and sources of business cycles; and analyzes how successfully forecasting firms and economists predict such key economic variables as interest rates and inflation.
Download or read book Financial Crises in DSGE Models written by Mr.Jaromir Benes and published by International Monetary Fund. This book was released on 2014-04-04 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents the theoretical structure of MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of financial cycles. A companion paper studies the simulation properties of MAPMOD.
Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Download or read book Financial Market Disturbances as Sources of Business Cycle Fluctuations in Finland written by Hanna Freystätter and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The American Business Cycle written by Robert J. Gordon and published by University of Chicago Press. This book was released on 2007-11-01 with total page 882 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent decades the American economy has experienced the worst peace-time inflation in its history and the highest unemployment rate since the Great Depression. These circumstances have prompted renewed interest in the concept of business cycles, which Joseph Schumpeter suggested are "like the beat of the heart, of the essence of the organism that displays them." In The American Business Cycle, some of the most prominent macroeconomics in the United States focuses on the questions, To what extent are business cycles propelled by external shocks? How have post-1946 cycles differed from earlier cycles? And, what are the major factors that contribute to business cycles? They extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations. Seven papers address specific aspects of economic activity: consumption, investment, inventory change, fiscal policy, monetary behavior, open economy, and the labor market. Five papers focus on aggregate economic activity. In a number of cases, the papers present findings that challenge widely accepted models and assumptions. In addition to its substantive findings, The American Business Cycle includes an appendix containing both the first published history of the NBER business-cycle dating chronology and many previously unpublished historical data series.
Download or read book Technology Shocks and Aggregate Fluctuations written by Mr.Pau Rabanal and published by International Monetary Fund. This book was released on 2004-12-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
Download or read book International Macroeconomics in the Wake of the Global Financial Crisis written by Laurent Ferrara and published by Springer. This book was released on 2018-06-13 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book collects selected articles addressing several currently debated issues in the field of international macroeconomics. They focus on the role of the central banks in the debate on how to come to terms with the long-term decline in productivity growth, insufficient aggregate demand, high economic uncertainty and growing inequalities following the global financial crisis. Central banks are of considerable importance in this debate since understanding the sluggishness of the recovery process as well as its implications for the natural interest rate are key to assessing output gaps and the monetary policy stance. The authors argue that a more dynamic domestic and external aggregate demand helps to raise the inflation rate, easing the constraint deriving from the zero lower bound and allowing monetary policy to depart from its current ultra-accommodative position. Beyond macroeconomic factors, the book also discusses a supportive financial environment as a precondition for the rebound of global economic activity, stressing that understanding capital flows is a prerequisite for economic-policy decisions.
