The External Finance Premium and the Macroeconomy: US post-WWII Evidence

No 83, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of monetary policy transmission. The model-consistent premium for external finance compares well to observable proxies of the premium, such as the high-yield spread. Fluctuations in the external finance premium are primarily driven by investment supply and monetary policy shocks. In terms of recession prediction, false signals of the premium can be given an economic interpretation

Keywords: financial accelerator; external finance premium; DSGE model; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E4 E5 G32 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: The external finance premium and the macroeconomy: US post-WWII evidence (2008)
Working Paper: The external finance premium and the macroeconomy: US post-WWII evidence (2008)
Working Paper: The External Finance Premium and the Macroeconomy: US post-WWII Evidence (2007)
Working Paper: The External Finance Premium and the Macroeconomy: US post-WWII Evidence (2006)
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