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A time varying DSGE model with financial frictions
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Galvão, Ana Beatriz, Giraitis, Liudas, Kapetanios, George and Petrova, Katerina (2016) A time varying DSGE model with financial frictions. Journal of Empirical Finance, 38 (Part B). pp. 690-716. doi:10.1016/j.jempfin.2016.02.012 ISSN 0927-5398.
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WRAP_1273962-wbs-280217-ff_revision_final.pdf - Accepted Version - Requires a PDF viewer. Download (874Kb) | Preview |
Official URL: http://dx.doi.org/10.1016/j.jempfin.2016.02.012
Abstract
We build a time varying DSGE model with financial frictions in order to evaluate changes in the responses of the macroeconomy to financial friction shocks. Using U.S. data, we find that the transmission of the financial friction shock to economic variables, such as output growth, has not changed in the last 30 years. The volatility of the financial friction shock, however, has changed, so that output responses to a one-standard deviation of the shock increase twofold in the 2007–2011 period in comparison with the 1985–2006 period. The time varying DSGE model with financial frictions improves the accuracy of forecasts of output growth and inflation during the tranquil period of 2000–2006, while delivering similar performance to the fixed coefficient DSGE model for the 2007–2012 period.
| Item Type: | Journal Article | ||||||||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Global Energy Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Financial crises -- Mathematical models -- United States, Macroeconomics, Global Financial Crisis, 2008-2009 | ||||||||||
| Journal or Publication Title: | Journal of Empirical Finance | ||||||||||
| Publisher: | Elsevier | ||||||||||
| ISSN: | 0927-5398 | ||||||||||
| Official Date: | September 2016 | ||||||||||
| Dates: |
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| Volume: | 38 | ||||||||||
| Number: | Part B | ||||||||||
| Page Range: | pp. 690-716 | ||||||||||
| DOI: | 10.1016/j.jempfin.2016.02.012 | ||||||||||
| Status: | Peer Reviewed | ||||||||||
| Publication Status: | Published | ||||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||||
| Date of first compliant deposit: | 1 March 2017 | ||||||||||
| Date of first compliant Open Access: | 24 September 2017 | ||||||||||
| Funder: | Economic and Social Research Council (Great Britain) (ESRC) | ||||||||||
| Grant number: | Grant No ES/K010611/1. |
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