Financial factors in economic fluctuations

Arbeitspapier

We augment a standard monetary DSGE model to include a banking sector and financial markets. We fit the model to Euro Area and US data. We find that agency problems in financial contracts, liquidity constraints facing banks and shocks that alter the perception of market risk and hit financial intermediation — ‘financial factors’ in short — are prime determinants of economic fluctuations. They have been critical triggers and propagators in the recent financial crisis. Financial intermediation turns an otherwise diversifiable source of idiosyncratic economic uncertainty, the ‘risk shock’, into a systemic force.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1192

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Financial Markets and the Macroeconomy ; Money Supply; Credit; Money Multipliers ; Monetary Policy ; Central Banks and Their Policies ; Bayesian Analysis: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Bayesian estimation ; DSGE model ; Financial Frictions ; Financial shocks ; Funding channel ; Lending channel ; Dynamisches Gleichgewicht ; Bank ; Finanzmarkt ; Liquiditätsbeschränkung ; Schock ; Marktrisiko ; Geldpolitik ; Geldpolitische Transmission ; Eurozone ; EU-Staaten ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Christiano, Lawrence ; Rostagno, Massimo ; Motto, Roberto
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/153626
• Last update: 10.03.2025, 11:42 AM CET