Business cycle and monetary policy analysis with market rigidities and financial frictions

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Date
2013Version
Acceso abierto / Sarbide irekia
Type
Documento de trabajo / Lan gaiak
Impact
|
nodoi-noplumx
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Abstract
We describe a dynamic macroeconomic model that incorporates firm-level borrowing constraints, competitive CES loan production, and rigidities on both setting prices and wages. The external finance premium (interest-rate spread) is countercyclical with technology and financial shocks, and procyclical with consumption spending shocks. The real effects of financial shocks are significantly amplified ...
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We describe a dynamic macroeconomic model that incorporates firm-level borrowing constraints, competitive CES loan production, and rigidities on both setting prices and wages. The external finance premium (interest-rate spread) is countercyclical with technology and financial shocks, and procyclical with consumption spending shocks. The real effects of financial shocks are significantly amplified when either considering greater rigidities for price/wage setting or a low elasticity of substitution in loan production (banking real rigidities). In the monetary policy analysis, a stabilizing Taylor (1983)-style rule performs slightly better when incorporating a positive and small response coefficient to the external finance premium. [--]
Subject
Financial accelerator,
Nominal rigidities,
Real rigidities
Serie
Documentos de Trabajo DE - ES Lan Gaiak /
1304
Departament
Universidad Pública de Navarra. Departamento de Economía /
Nafarroako Unibertsitate Publikoa. Ekonomia Saila