Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment

The recent global financial crisis and the Eurozone sovereign default have rekindled the debate on the interactions between the real sector and the financial sphere. The present paper provides an assessment of the role of financial frictions on business cycles in Canada, the Euro Area, the U.K., and...

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Autores principales: Eric Martial Etoundi Atenga, Maman Hassan Abdo, Mbodja Mougoué
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Lenguaje:EN
Publicado: Pompea College of Business 2021
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spelling oai:doaj.org-article:215e7c2fa781441a8848b360f8a976fd2021-11-16T19:10:34ZFinancial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment10.37625/abr.24.2.62-990743-23482689-8810https://doaj.org/article/215e7c2fa781441a8848b360f8a976fd2021-11-01T00:00:00Zhttps://digitalcommons.newhaven.edu/americanbusinessreview/vol24/iss2/4/https://doaj.org/toc/0743-2348https://doaj.org/toc/2689-8810The recent global financial crisis and the Eurozone sovereign default have rekindled the debate on the interactions between the real sector and the financial sphere. The present paper provides an assessment of the role of financial frictions on business cycles in Canada, the Euro Area, the U.K., and the U.S. during these recent financial crises using an extension of the DSGE methodology described by Merola (2015). The main goal is to examine whether and the extent to which those crises enhanced the contribution of financial frictions in driving macroeconomic fluctuations. The models’ properties are examined with posteriors distributions, variance decomposition, and historical decomposition. Posteriors distributions show that the role of real shocks in driving macroeconomic fluctuations decrease with the incorporation of financial frictions in the core DSGE model. Variance decomposition shows that financial frictions and financial shocks affect the business cycle through investment. The empirical estimates also suggest that the contribution of financial frictions and financial shocks in driving investment increases during the global financial crisis.Eric Martial Etoundi Atenga Maman Hassan AbdoMbodja MougouéPompea College of Businessarticlefinancial frictionsdsge modelbayesian estimationBusinessHF5001-6182ENAmerican Business Review, Vol 24, Iss 2, Pp 62-99 (2021)
institution DOAJ
collection DOAJ
language EN
topic financial frictions
dsge model
bayesian estimation
Business
HF5001-6182
spellingShingle financial frictions
dsge model
bayesian estimation
Business
HF5001-6182
Eric Martial Etoundi Atenga
Maman Hassan Abdo
Mbodja Mougoué
Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
description The recent global financial crisis and the Eurozone sovereign default have rekindled the debate on the interactions between the real sector and the financial sphere. The present paper provides an assessment of the role of financial frictions on business cycles in Canada, the Euro Area, the U.K., and the U.S. during these recent financial crises using an extension of the DSGE methodology described by Merola (2015). The main goal is to examine whether and the extent to which those crises enhanced the contribution of financial frictions in driving macroeconomic fluctuations. The models’ properties are examined with posteriors distributions, variance decomposition, and historical decomposition. Posteriors distributions show that the role of real shocks in driving macroeconomic fluctuations decrease with the incorporation of financial frictions in the core DSGE model. Variance decomposition shows that financial frictions and financial shocks affect the business cycle through investment. The empirical estimates also suggest that the contribution of financial frictions and financial shocks in driving investment increases during the global financial crisis.
format article
author Eric Martial Etoundi Atenga
Maman Hassan Abdo
Mbodja Mougoué
author_facet Eric Martial Etoundi Atenga
Maman Hassan Abdo
Mbodja Mougoué
author_sort Eric Martial Etoundi Atenga
title Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
title_short Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
title_full Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
title_fullStr Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
title_full_unstemmed Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment
title_sort financial frictions and macroeconomy during financial crises: a bayesian dsge assessment
publisher Pompea College of Business
publishDate 2021
url https://doaj.org/article/215e7c2fa781441a8848b360f8a976fd
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AT mamanhassanabdo financialfrictionsandmacroeconomyduringfinancialcrisesabayesiandsgeassessment
AT mbodjamougoue financialfrictionsandmacroeconomyduringfinancialcrisesabayesiandsgeassessment
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