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    Financial frictions in the Euro Area and the United States: a Bayesian assessment

    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 Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 21 Mar 2019 16:16
    Last Modified: 27 Jul 2019 16:09
    URI: http://eprints.bbk.ac.uk/id/eprint/26602

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