Görtz, Christoph and Tsoukalas, John (2011): News and financial intermediation in aggregate and sectoral fluctuations.
This is the latest version of this item.
Download (748kB) | Preview
We estimate a two-sector DSGE model with financial intermediaries—a-la Gertler and Karadi 2011) and Gertler and Kiyotaki (2010)—and quantify the importance of financial shocks in accounting for aggregate and sectoral fluctuations. Our results indicate a significant role of financial market news as a predictive force behind fluctuations. Specifically, news about the valuation of assets held by financial intermediaries, reflected one to two years in advance in corporate bond markets, affect the supply of credit and are estimated to be a significant source of aggregate fluctuations, accounting for approximately 25% of output, 20% of investment and 25% of hours variation in both cyclical and lower frequencies. Financial intermediation is essential for the importance and propagation of these valuation shocks. Importantly, valuation news shocks generate both aggregate and sectoral co-movement as in the data.
|Item Type:||MPRA Paper|
|Original Title:||News and financial intermediation in aggregate and sectoral fluctuations|
|English Title:||News and Financial Intermediation in Aggregate and Sectoral Fluctuations|
|Keywords:||News; Financial intermediation; Business cycles; DSGE; Bayesian estimation|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Christoph Görtz|
|Date Deposited:||15. Mar 2012 13:29|
|Last Modified:||20. Mar 2015 06:38|
An, S. and Schorfheide, F. (2007). Bayesian analysis of DSGE models. Econometric Reviews, 26:113–172.
Barsky, R. B. and Sims, E. R. (2011). Information, animal spirits, and the meaning of innovations in consumer confidence. Journal of Monetary Economics, forthcoming.
Bassett, W., Chosak, M., Driscoll, J., and Zakrajcsek, E. (2010). Identifying the macroeconomic effects of bank lending supply shocks. Mimeo, Federal Reserve Board.
Beaudry, P. and Portier, F. (2004). An exploration into Pigou’s theory of cycles. Journal of Monetary Economics, 51(6):1183–1216.
Beaudry, P. and Portier, F. (2006). News, stock prices and economic fluctuations. The American Economic Review, 96(4):1293–1307.
Bernanke, B. S., Gertler, M., and Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. volume 1 of Handbook of Macroeconomics, chapter 21, pages 1341–1393. Elsevier.
Bernanke, B. S., Lown, C. S., and Friedman, B. M. (1991). The credit crunch. Brookings Papers on Economic Activity, 1991(2):205–247.
Boldrin, M., Christiano, L. J., and Fisher, J. D. M. (2001). Habit persistence, asset returns, and the business cycle. American Economic Review, 91(1):149–166.
Brooks, S. P. and Gelman, A. (1998). General methods for monitoring convergence of iterative simulations. Journal of Computational and Graphical Statistics, 7(4):434–455.
Brunnermeier, M. and Sannikov, Y. (2009). A macroeconomic model with a financial sector. Princeton University, mimeo.
Buakez, H., Cardia, E., and Ruge-Murcia, F. (2009). The transmission of monetary policy in a multisector economy. International Economic Review, 50:1243–1266.
Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12(3):383–398.
Caplin, A. and Leahy, J. (1997). Aggregation and optimization with state-dependent pricing. Econometrica, 65(3):601–626.
Christensen, I. and Dib, A. (2008). The financial accelerator in an estimated New Keynesian model. Review of Economic Dynamics, 11(1):155–178.
Christiano, L., Motto, R., and Rostagno, M. (2008). Monetary policy and stock market boombust cycles. Working Paper Series 955, European Central Bank.
Christiano, L., Motto, R., and Rostagno, M. (2010). Financial factors in economic fluctuations. Working Paper Series 1192, European Central Bank.
Christiano, L. J., Eichenbaum, M., and Evans, C. L. (2005). Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy, 113(1):1–45.
Cochrane, J. H. and Piazzesi, M. (2005). Bond risk premia. American Economic Review, 95(1):138–160.
Davis, J. (2007). News and the term structure in general equilibrium. Manuscript, Northwestern University.
Del Negro, M., Schorfheide, F., Smets, F., and Wouters, R. (2007). On the fit and forecasting performance of new keynesian models. Journal of Business and Economic Statistics, 25(2):123–143.
Del Negro, M., Schorfheide, F., Smets, F., and Wouters, R. (2007). On the fit and forecasting performance of new Keynesian models. Journal of Business and Economic Statistics, 25(2):132–162.
DiCecio, R. (2009). Sticky wages and sectoral labor comovement. Journal of Economic Dynamics and Control, 33(3):538 – 553.
Edge, R. M., Kiley, M. T., and Laforte, J.-P. (2008). Natural rate measures in an estimated DSGE model of the U.S. economy. Journal of Economic Dynamics and Control, 32(8):2512 – 2535.
Erceg, C. J., Henderson, D. W., and Levin, A. T. (2000). Optimal monetary policy with staggered wage and price contracts. Journal of Monetary Economics, 46(2):281–313.
Fernández-Villaverde, J. (2009). The econometrics of DSGE models. Working paper 14677, NBER.
Fisher, J. D. M. (2006). The dynamic effects of neutral and investment-specific technology shocks. Journal of Political Economy, 114(3):413–451.
Fujiwara, I., Hirose, Y., and Shintani, M. (2011). Can news be a major source of aggregate fluctuations? A Bayesian DSGE approach. Journal of Money, Credit and Banking, 43(1):1–29.
Gerali, A., Neri, S., Sessa, L., and Signoretti, F. M. (2010). Credit and banking in a DSGE model of the Euro Area. Journal of Money, Credit and Banking, 42(s1):107–141.
Gertler, M. and Karadi, P. (2011). A model of unconventional monetary policy. Journal of Monetary Economics, 58(1):17 – 34.
Gertler, M. and Kiyotaki, N. (2010). Financial intermediation and credit policy in business cycle analysis. Handbook of Monetary Economics (forthcoming).
Gertler, M., Kiyotaki, N., and Queralto, A. (2011). Financial crises, bank risk exposure and government financial policy. Princeton University Mimeo.
Geweke, J. (1999). Using simulation methods for bayesian econometric models: Inference, development and communication. Econometric Reviews, 18:1–126.
Gilchrist, S., Yankov, V., and Zakrajsek, E. (2009). Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets. Journal of Monetary Economics, 56:471–493.
Gilchrist, S. and Zakrajsek, E. (2011). Credit spreads and business cycle fluctuations. The American Economic Review, forthcoming.
Gomes, J. F. and Schmid, L. (2009). Equilibrium credit spreads and the macroeconomy. Mimeo, The Wharton School of the University of Pennsylvania.
Görtz, C. and Tsoukalas, J. (2011a). Learning, capital-embodied technology and aggregate fluctuations. Centre for Finance and Credit Markets Working Paper, 11/06.
Görtz, C. and Tsoukalas, J. (2011b). UK business cycles:Evidence from an estimated twosector DSGE model. University of Nottingham Mimeo.
Gourio, F. (2009). Disasters risk and business cycles. NBER Working Papers 15399, National Bureau of Economic Research, Inc.
Greenwood, J., Hercowitz, Z., and Krusell, P. (2000). The role of investment specific technological change in the business cycle. European Economic Review, 44:91–115.
Guerrieri, L., Henderson, D., and Kim, J. (2010). Interpreting investment-specific technology shocks. Board of Governors of the Federal Reserve System (U.S.) – International Finance Discussion Papers, 1000.
Hall, R. E. (1997). Macroeconomic fluctuations and the allocation of time. Journal of Labor Economics, 15(1):S223–50.
Hirakata, N., Sudo, N., and Ueda, K. (2011). Do banking shocks matter for the U.S. economy? Journal of Economic Dynamics and Control, 35(12):2042 – 2063.
Hornstein, A. and Praschnik, J. (1997). Intermediate inputs and sectoral comovement in the business cycle. Journal of Monetary Economics, 40(3):573–595.
Horvath, M. (1998). Cyclicality and sectoral linkages: Aggregate fluctuations from independent sectoral shocks. Review of Economic Dynamics, 1(4):781–808.
Horvath, M. (2000). Sectoral shocks and aggregate fluctuations. Journal of Monetary Economics, 45(1):69–106.
Huffman, G. W. and Wynne, M. A. (1999). The role of intratemporal adjustment costs in a multisector economy. Journal of Monetary Economics, 43(2):317–350.
Ireland, P. N. and Schuh, S. (2008). Productivity and us macroeconomic performance: Interpreting the past and predicting the future with a two-sector real business cycle model. Review of Economic Dynamics, 11(3):473 – 492.
Jaimovich, N. and Rebelo, S. (2009). Can news about the future drive the business cycle? American Economic Review, 99(4):1097–1118.
Jermann, U. and Qudrini, V. (2012). Macroeconomic effects of financial shocks. American Economic Review, 102.
Justiniano, A., Primiceri, G. E., and Tambalotti, A. (2010). Investment shocks and business cycles. Journal of Monetary Economics, 57(2):132–145.
Justiniano, A., Primiceri, G. E., and Tambalotti, A. (2011). Investment shocks and the relative price of investment. Review of Economic Dynamics, 14(1):101 – 121.
Khan, H. and Tsoukalas, J. (2011). The quantitative importance of news shocks in estimated dsge models. Carleton Economic Papers 09-07, Carleton University, Department of Economics.
Kurmann, A. and Otrok, C. (2010). News shocks and the slope of the term structure of interest rates. Technical report.
Levin, A., Onatski, A., Williams, J., and Williams, N. (2005). Monetary policy under uncertainty in micro-founded macroeconometric models. In Gertler, M. and Rogoff, K., editors, NBER Macroeconomics Annual, pages 229–287.
Long, John B, J. and Plosser, C. I. (1983). Real business cycles. Journal of Political Economy, 91(1):39–69.
Lown, C. and Morgan, D. (2006). The credit cycle and the business cycle: new findings using the loan officer opinion survey. Journal of Money Credit and Banking, 38:1575–1697.
Lubik, T. and Schorfheide, F. (2004). Testing for indeterminacy: an application to US monetary policy. American Economic Review, 94:190–217.
Mankiw, N. Gregory and Reis, Ricardo (2002). Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. The Quarterly Journal of Economics, 117(4):1295–1328.
Mueller, P. (2009). Credit spreads and real activity. Mimeo, London School of Economics and Political Science.
Nolan, C. and Thoenissen, C. (2009). Financial shocks and the US business cycle. Journal of Monetary Economics, 56(4):596–604.
Philippon, T. (2009). The bond market’s q. Qarterly Journal of Economics, 124:1011–1056.
Rotemberg, J., J. and Woodford, M. (1995). Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets, chapter 9, pages 243–293. in Frontiers of Business Cycle Research. Princeton University Press, Princeton, NJ.
Schmitt-Grohe, S. and Uribe, M. (2010). What’s news in business cycles. Technical report, Columbia University Mimeo.
Schorfheide, F. (2000). Loss function-based evaluation of DSGE models. Journal of Applied Econometrics, 15:645–670.
Sims, C. A. (2003). Implications of rational inattention. Journal of Monetary Economics, 50(3):665–690.
Smets, F. and Wouters, R. (2003). An estimated dynamic stochastic general equilibrium model of the Euro Area. Journal of the European Economic Association, 1:1123–75.
Smets, F. and Wouters, R. (2007). Shocks and frictions in US business cycles: A Bayesian DSGE approach. American Economic Review, 97(3):586–606.
Van Nieuwerburgh, S. and Veldkamp, L. (2006). Learning asymmetries in real business cycles. Journal of Monetary Economics, 53:753–772.
Villa, S. (2010). On the nature of the financial system in the euro area: a bayesian dsge approach. Mimeo, University of London, Birkbeck College.
Walsh, C. E. (1993). What caused the 1990-1991 recession? Economic Review, pages 33–48.
Available Versions of this Item
News and Financial Intermediation in Aggregate Fluctuations. (deposited 14. Oct 2011 14:17)
- News and financial intermediation in aggregate and sectoral fluctuations. (deposited 15. Mar 2012 13:29) [Currently Displayed]