Identification of Financial Factors in Economic Fluctuations
KOF Working Paper No. 364
57 Pages Posted: 14 Aug 2014
Date Written: July 31, 2014
We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second step we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. In the extended set-up financial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output.
Keywords: VAR, sign restrictions, financial shocks, external finance premium, housing, uncertainty
JEL Classification: C11, C32, E32
Suggested Citation: Suggested Citation