Villay, S. (2014) Financial frictions in the Euro Area and the United States: a Bayesian assessment. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
This paper assesses the empirical relevance of financial frictions in the Euro Area (EA) and the United States (US). It provides a comprehensive set of comparisons between two models: (i) a Smets and Wouters (2007) (SW) model with financial frictions originating in non-financial firms à la Bernanke et al. (1999) (SWBGG); and (ii) a SW model with frictions originating in financial intermediaries, à la Gertler and Karadi (2011) (SWGK). Proved that the introduction of financial frictions in either way improves the models' fit compared to a standard SW model, the empirical comparisons reveal that the SWGK model outperforms the SWBGG model both in the EA and the US. Two main factors explain this result: first, the magnitude of the financial accelerator effect; and second, the role of the investment-specific technology shock in affecting financial variables.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM 1407; ISSN 1745-8587 |
| Keyword(s) / Subject(s): | Financial frictions, DSGE models, Bayesian estimation |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 21 Mar 2019 16:16 |
| Last Modified: | 08 Aug 2024 22:42 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26602 |
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