Financial Frictions in Data: Evidence and Impact

December 24, 2014

Preview Citation

Format: Chicago

Marzie Taheri Sanjani. Financial Frictions in Data: Evidence and Impact, (USA: International Monetary Fund, 2014) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates financial frictions in US postwar data to understand the interaction between the real business cycle and the credit market. A Bayesian estimation technique is used to estimate a large Vector Autoregression and New Keynesian models demonstrating how financial shocks can have a large and sluggish impact on the economy. I identify the default risk and the maturity mismatch channels of monetary policy transmission; I further employ a generalized-IRF to establish countercyclicality of risk spreads; and I show that the maturity mismatch shocks produce a stronger impact than the default risk shocks.

Subject: Bond yields, Credit, Debt default, Econometric analysis, Economic theory, External debt, Financial frictions, Financial institutions, Impulse response analysis, Money, Vector autoregression

Keywords: Bayesian VAR, Bond yields, Contractionary monetary policy, Corporate bond bond yield, Credit, Debt default, Default risk, Default risk channel, DSGE, Expansionary monetary policy shock, External Financing Premium, Financial Frictions, Financial shocks, Generalized IRF, Liquidity risk, Maturity mismatch risk, Modelsempirical Vector Auto Regression, Monetary policy shock, Monetary policy transmission, Risk channel, VAR model, Vector autoregression, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/238
Stock No:

WPIEA2014238
ISBN:

9781484336557
ISSN:

1018-5941

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