Abstract

http://ssrn.com/abstract=1600166
 
 

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Financial Factors in Economic Fluctuations


Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Roberto Motto


European Central Bank (ECB)

Massimo Rostagno


European Central Bank (ECB)

April 26, 2010

ECB Working Paper No. 1192

Abstract:     
We augment a standard monetary DSGE model to include a banking sector and financial markets. We fit the model to Euro Area and US data. We find that agency problems in financial contracts, liquidity constraints facing banks and shocks that alter the perception of market risk and hit financial intermediation — ‘financial factors’ in short — are prime determinants of economic fluctuations. They have been critical triggers and propagators in the recent financial crisis. Financial intermediation turns an otherwise diversifiable source of idiosyncratic economic uncertainty, the ‘risk shock’, into a systemic force.

Number of Pages in PDF File: 133

Keywords: DSGE model, Financial frictions, Financial shocks, Bayesian estimation, Lending channel, Funding channel

JEL Classification: E3, E22, E44, E51, E52, E58, C11, G1, G21, G3

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Date posted: May 26, 2010  

Suggested Citation

Christiano, Lawrence J. and Motto, Roberto and Rostagno, Massimo, Financial Factors in Economic Fluctuations (April 26, 2010). ECB Working Paper No. 1192. Available at SSRN: http://ssrn.com/abstract=1600166

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Roberto Motto
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany
Massimo Rostagno
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany
+49 69 1344 7663 (Phone)
+49 69 1344 7604 (Fax)
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