Understanding the Aggregate Effects of Credit Frictions and Uncertainty: Additional Results

86 Pages Posted: 15 Jun 2017

See all articles by Nathan S. Balke

Nathan S. Balke

Southern Methodist University (SMU) - Department of Economics; Federal Reserve Bank of Dallas - Research Department

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Zheng Zeng

Bowling Green State University, Department of Economics

Date Written: June 12, 2017

Abstract

This paper integrates a financial accelerator mechanism à la Bernanke et al. (1999) and time-varying uncertainty into a medium-scale Dynamic New Keynesian model. In our model, uncertainty emerges from monetary policy (policy uncertainty) as well as from financial risks (micro uncertainty) and the aggregate state of the economy (macro uncertainty). We describe the time-variant policy, micro and macro uncertainty using a stochastic volatility model. We use this framework to identify how uncertainty propagates and its interplay with financial frictions. We also investigate how uncertainty affects the propagation of other shocks (TFP, monetary policy shocks).

Keywords: Stochastic Volatility, Uncertainty, Financial Accelerator, Perturbation Methods

JEL Classification: E32, E44, D8, C32

Suggested Citation

Balke, Nathan S. and Martinez-Garcia, Enrique and Zeng, Zheng, Understanding the Aggregate Effects of Credit Frictions and Uncertainty: Additional Results (June 12, 2017). Available at SSRN: https://ssrn.com/abstract=2986475 or http://dx.doi.org/10.2139/ssrn.2986475

Nathan S. Balke

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-2693 (Phone)
214-768-1821 (Fax)

Federal Reserve Bank of Dallas - Research Department

PO Box 655906
Dallas, TX 75265-5906
United States

Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

Zheng Zeng

Bowling Green State University, Department of Economics ( email )

Bowling Green, OH 43403
United States
419-372-8397 (Phone)

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