Financial Factors in Economic Fluctuations

By Larry Christiano, Roberto Motto, M. Rostagno. Social Science Research Network, 2010

772 citations recorded by the source corpus.

We augment a standard monetary DSGE model to include financial markets, and fit the model to EA and US data. The empirical results draw attention to a new shock - a ‘risk shock’ to entrepreneurs - and to an important new nominal rigidity. The risk shock originates in the financial sector and accounts for a significant portion of business cycle fluctuations. We do a detailed study of the role of this shock in the boom-bust of the late 1990s and early 2000s. The new nominal friction corresponds to the fact that lending contracts are typically denominated in nominal terms. Consistent with Fisher (1933), we show that the distributional consequences of this nominal rigidity play an important role in the propagation of shocks. ∗ This paper expresses the views of the authors and not necessarily those of the European

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/be8d051fbc522880c98282d29114111fa0a253ca

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Citations in the corpus

Uncertainty and Economic Activity: Evidence from Business Survey Data (2013, neutral): “We are grateful to Kai Carstensen and Sigrid Stallhofer from the IFO Institute as well as Holly Wade from the NFIB for providing us with their data and introducing us to the institutional backgrounds.”
Capital Regulation in a Macroeconomic Model with Three Layers of Default (2014, neutral): “max ct+1,n e t+1 (ct+1) e(nt+1) 1−χe (15)”
Really Uncertain Business Cycles (2012, neutral): “…Fernandez-Villaverde et al.’s (2009) paper on uncertainty and exchange rates, Kehrig’s (2011) paper on counter-cyclical productivity and mark-ups, Christiano et al. (2010), Arrelano et al. (2011) and Gilchrist et al.’s (2011) papers on uncertainty shocks in models with financial constraints,…”
Precautionary Savings, Illiquid Assets, and the Aggregate Consequences of Shocks to Household Income Risk (2019, background): “Overall, they nd similar aggregate e ects to Fernández-Villaverde et al. (2011), in particular at the zero-lower bound.”
Global implications of national unconventional policies (2013, background): “Capital in process for period t +1 is transformed into capital for production after the realization of a country-specific multiplicative shock to capital quality, ψt+1; Kt+1 = ψt+1St (4) The random variable ψt+1 could be thought of as capturing some form of economic obsolescence, as opposed to physi”
The Chicago Plan Revisited (2012, background): “Not for Redistribution 3”
How Do Credit Supply Shocks Propagate Internationally? A Gvar Approach (2015, background): “…assets (Gertler and Karradi (2009)), a decline in bank capital (Gerali et al. (2010)) or an increase in expected or realized credit default risk (Christiano et al. (2010), AttaMensah and Dib (2008))) or heightened risk aversion by investors unrelated to credit default (Gilchrist et al. (2009),…”
Bank Leverage Regulation and Macroeconomic Dynamics (2011, positive): “The description is organized in blocks that reflect the three key ingredients of our analysis: a financial environment that reserves a significant role for bank capital and bank capital regulation in the transmission of shocks, an endogenous link between the banking sector’s leverage and its risk of”