Monetary Policy and Stock Market Booms

Christiano, Lawrence J.; Ilut, Cosmin; Motto, Roberto; Rostagno, Massimo

doi:10.3386/w16402

Cited by 242 publications

(246 citation statements)

References 20 publications

Supporting

Mentioning

230

Contrasting

Unclassified

Order By: Relevance

“…For the fraction of GDP spent on vacancy costs we use a prior with a mode of 0.1% corresponding to = 2:3. 15 We set the mode for the replacement rate for unemployed workers, bshare, slightly above the average statutory replacement ratio after tax for this time period which is 0.71. The reason to put the prior above the statutory rate is that the latter ignores the utility value of leisure and any private unemployment insurance, which is reasonably common.…”

Section: Choice Of Priorsmentioning

confidence: 99%

“…14 In this way we are not constrained by the assumption for the functional form of the idiosyncratic risk. 15 Formally the steady state recruitment share is de…ned as recruitshare = 2 Nṽ 2 l y Second, we add a time series for stock prices (the 'OMX Stockholm PI'index, formerly 'SAX All Shares') scaled by the domestic price level as a measure of real net worth. Third, we match a proxy for the spread between the risk-free rate and the loan rate entrepreneurs face.…”

Section: Datamentioning

confidence: 99%

See 1 more Smart Citation

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

2010

View full text Add to dashboard Cite

The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

show abstract

Section: Choice Of Priorsmentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

2010

View full text Add to dashboard Cite

show abstract

“…This household has utility given by: 16 ( ) ex post utility of household that joins labor force and nds a job…”

Section: Ecb Working Paper Series No 1202mentioning

confidence: 99%

Involuntary Unemployment and the Business Cycle

2010

View full text Add to dashboard Cite

show abstract

“…Over the past two decades, there have been important advances in the theoretical literature on the macroeconomic impact of financial frictions. Notable contributions to the literature include Kiyotaki and Moore (1997), Bernanke, Gertler, and Gilchrist (1999), Christiano, Ilut, Motto, and Rostagno (2010), Carlstrom, Fuerst, and Paustian (2010), Curdia and Woodford (2010) and Gertler and Kiyotaki (2010). This research shows that credit market frictions (due to information asymmetry, agency costs or collateral constraints) act as a financial accelerator that in turn leads to an amplification of business cycles, and highlights the mechanisms through which credit market conditions are likely to impact the real economy.…”

Section: Introductionmentioning

confidence: 99%

“…Notable examples are Christiano, Ilut, Motto, and Rostagno (2010), Gertler and Kiyotaki (2010) and Karadi (2011, 2013).…”

Section: Introductionmentioning

confidence: 99%

Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

Pesaran

2016

SSRN Journal

View full text Add to dashboard Cite

This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. Firms are identical ex ante but differ ex post due to different realizations of firm-specific technology shocks, possibly leading to default by some firms. The paper advances a new modelling approach for the analysis of firm defaults and financial intermediation that takes account of the financial implications of such defaults for both households and banks. Results from a calibrated version of the model suggest that, in the steady state, a firm's default probability rises with its leverage ratio and the level of uncertainty in the economy. A positive credit shock, defined as a rise in the loan-todeposit ratio, increases output, consumption, hours and productivity, and reduces the spread between loan and deposit rates. The effects of the credit shock tend to be highly persistent, even without price rigidities and habit persistence in consumption behavior. JEL classification: E32, E44, G21 Bank classification: Business fluctuations and cycles; Economic models; Credit and credit aggregates; Financial institutions RésuméLes auteurs proposent un modèle théorique pour l'analyse de la relation entre les chocs de crédit, les défaillances d'entreprises et la volatilité, ainsi que pour l'étude des effets de ces chocs sur la dynamique du cycle économique. Dans ce modèle, des entreprises identiques ex ante se différencient ex post en réponse aux chocs technologiques réalisés, qui sont propres à chaque entreprise et peuvent provoquer sa défaillance. Le nouveau modèle employé par les auteurs pour examiner les défaillances des firmes et l'intermédiation financière tient compte des conséquences financières de ces défaillances à la fois sur les ménages et sur les banques. Les résultats tirés d'une version étalonnée du modèle indiquent qu'à l'équilibre de long terme, la probabilité de défaut d'une entreprise augmente avec son ratio de levier et le degré d'incertitude dans l'économie. Un choc de crédit positif -à savoir une hausse du ratio des prêts aux dépôts -accroît la production, la consommation, le nombre d'heures travaillées et la productivité et réduit l'écart entre le taux prêteur et le taux de rémunération des dépôts. Les retombées du choc de crédit tendent à perdurer longtemps même en l'absence de rigidité des prix et de persistance des habitudes de consommation.

show abstract

Monetary Policy and Stock Market Booms

Cited by 242 publications

References 20 publications

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

Involuntary Unemployment and the Business Cycle

Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults

Contact Info

Product

Resources

About