Abstract
The quantitative significance of shocks to the financial intermediary (FI) has not received much attention up to now. We estimate a DSGE model with what we describe as chained credit contracts, using Bayesian technique. In the model, credit-constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. We find that the shocks to the FIs' net worth play an important role in the investment dynamics, accounting for 17% of its variations. In particular, in the Great Recession, they are the key determinants of the investment declines, accounting for 36% of the variations.
| Original language | English |
|---|---|
| Pages (from-to) | 2042-2063 |
| Number of pages | 22 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 35 |
| Issue number | 12 |
| DOIs | |
| Publication status | Published - 2011 Dec |
| Externally published | Yes |
Keywords
- Chained credit contracts
- Financial accelerators
- Financial intermediaries
- Monetary policy
ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics