Financial Shocks, Financial Frictions and Financial Intermediaries in DSGE Models: Comments on the Recent Literature

Arend, Mario (2010): Financial Shocks, Financial Frictions and Financial Intermediaries in DSGE Models: Comments on the Recent Literature.

Abstract

The aim of this work is to compare and contrast different ways of modeling financial shocks and financial intermediaries in the Dynamic Stochastic General Equilibrium models (DSGE models) and to discuss the empirical evidence on the importance of modeling financial sector and financial shocks in the economy. The analysis is based on four papers on the matter Jerman and Quiadrini (2009),Christiano, Motto and Rostagno (2006), Goodfriend and McCallum (2007), and Gertler and Kiyotaki (2009)

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial frictions; Financial Intermediaries; Financial shocks; DSGE models.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

References

Bernanke, B.S., and Gertler, M., 1989. Agency Costs, Net Worth, and Business Fluctuations, American Economic Review 79, 14-31.

Bernanke, B.S., and Gertler, M., 1995. Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives 9, 27-48.

Bernanke, B.S., Gertler, M., and Gilchrist S., 1999. The Financial Accelerator in a Quantitative Business Cycle Framework, In J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics , vol. 1C. North-Holland Publishing Co.

Carlstrom, C., and Fuerst, T., 1997. Agency Costs, Net Worth, and Business fluctuations: A Computable General Equilibrium Analysis, American Economic Review 87, 893-910.

Christiano, L.J., Motto, R., and Rostagno, M., 2006. Financial Factors in Business Cycles, Northwestern University, mimeo.

Cooley, T., Marimon, R., and Quadrini, V, 2004. Aggregate Consequences of Limited Contract Enforceability, Journal of Political Economy 112, 817-847.

Gertler, M., and Kiyotaki, N., 2009. Financial Intermediation and Credit Policy in Business Cycle Analysis, October, mimeo.

Goodfriend, M., and McCallum, B.T., 2007. Banking and Interest Rates in Monetary Policy Analysis: A Quantitive Exploration, Journal of Monetary Economics, 54, pp. 1480-1507.

Jerman, U., and Quadrini, E, 2009. Macroeconomic Effects of Financial Shocks, NBER Working Paper 15338.

Kiyotaki, N., and Moore, J., 1997. Credit Cycles, Journal of Political Economy 105, 211-248.

Kocherlakota, N., 2000. Creating Business Cycles Through Credit Constraints, Federal Reserve Bank of Minneapolis Quarterly Review, 24(3), 2-10.