Publication Date:
2013
Short description:
Business Cycle and Monetary Policy with Market Rigidites and Financial Frictions / Deidda, Luca Gabriele; Galdon, Jose; Casares, Mikel. - 2013/01:(2013).
abstract:
We examine business cycle fluctuations in a dynamic macroeconomic model that incorporates
firm-level borrowing constraints, competitive loan production, and rigidities on both setting prices
and wages. The external finance premium (interest-rate spread) is countercyclical with technology
and financial shocks, and procyclical with consumption spending shocks. The real effects of financial
shocks are significantly amplified when either considering greater rigidities for price/wage setting
or a low elasticity of substitution in loan production (real rigidities in the financial sector). In
the monetary policy analysis, a stabilizing Taylor (1983)-style rule performs slightly better when
incorporating a positive and small response coefficient to the external finance premium.
firm-level borrowing constraints, competitive loan production, and rigidities on both setting prices
and wages. The external finance premium (interest-rate spread) is countercyclical with technology
and financial shocks, and procyclical with consumption spending shocks. The real effects of financial
shocks are significantly amplified when either considering greater rigidities for price/wage setting
or a low elasticity of substitution in loan production (real rigidities in the financial sector). In
the monetary policy analysis, a stabilizing Taylor (1983)-style rule performs slightly better when
incorporating a positive and small response coefficient to the external finance premium.
Iris type:
2.1 Contributo in volume (Capitolo o Saggio)
Keywords:
: financial accelerator, nominal rigidities, real rigidities.
List of contributors:
Deidda, Luca Gabriele; Galdon, Jose; Casares, Mikel
Book title:
Contributi di ricerca CRENOS