TY - JOUR
T1 - Chapter 21 The financial accelerator in a quantitative business cycle framework
AU - Bernanke, Ben S.
AU - Gertler, Mark
AU - Gilchrist, Simon
N1 - Funding Information:
Abstract Keywords 1. Introduction 2. The model: overview and basic assumptions 3. The demand for capital and the role of net worth 3.1. Contract terms when there is no aggregate risk 3.2. Contract terms when there is aggregate risk 3.3. Net worth and the optimal choice of capital 4. General equilibrium 4.1. The entrepreneurial sector 4.2. The complete log-linearized model 4.2.1. Two extensions of the baseline model 4.2.1.1. Investment delays 4.2.1,2. Heterogeneous firms 5. Model simulations 5.1. Model parametrization 5.2. Results 5.2.1. Response to a monetary policy shock 5.2.2. Shock to technology, demand, and wealth 5.2.3. Investment delays and heterogeneous firms 6. A highly selected review of the literature 7. Directions for furore work Appendix A. The optimal financial contract and the demand for capital A. 1. The partial equilibrium contracting problem A.2. The log-normal distribution A.3. Aggregate risk * Thanks to Michael Woodford, Don Morgan and John Taylor for helpful conanents, and to the NSF and C.M Starr Center for financial support. ** Each author is also affiliated with the National Bmeau of Economic Research.
PY - 1999
Y1 - 1999
N2 - This chapter develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the framework exhibits a "financial accelerator", in that endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy. In addition, we add several features to the model that are designed to enhance the empirical relevance. First, we incorporate money and price stickiness, which allows us to study how credit market frictions may influence the transmission of monetary policy. In addition, we allow for lags in investment which enables the model to generate both hump-shaped output dynamics and a lead-lag relation between asset prices and investment, as is consistent with the data. Finally, we allow for heterogeneity among firms to capture the fact that borrowers have differential access to capital markets. Under reasonable parametrizations of the model, the financial accelerator has a significant influence on business cycle dynamics.
AB - This chapter develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the framework exhibits a "financial accelerator", in that endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy. In addition, we add several features to the model that are designed to enhance the empirical relevance. First, we incorporate money and price stickiness, which allows us to study how credit market frictions may influence the transmission of monetary policy. In addition, we allow for lags in investment which enables the model to generate both hump-shaped output dynamics and a lead-lag relation between asset prices and investment, as is consistent with the data. Finally, we allow for heterogeneity among firms to capture the fact that borrowers have differential access to capital markets. Under reasonable parametrizations of the model, the financial accelerator has a significant influence on business cycle dynamics.
KW - business fluctuations
KW - financial accelerator
KW - monetary policy
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U2 - 10.1016/S1574-0048(99)10034-X
DO - 10.1016/S1574-0048(99)10034-X
M3 - Review article
AN - SCOPUS:70449530457
SN - 1574-0048
VL - 1
SP - 1341
EP - 1393
JO - Handbook of Macroeconomics
JF - Handbook of Macroeconomics
IS - PART C
ER -