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The empirical performance of the financial accelerator since 2008

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  • Boehl, Gregor
  • Strobel, Felix

Abstract

We evaluate the empirical performance of financial frictions à la Bernanke et al. (1999) during and after the Global Financial Crisis. We document that in an ex-post analysis based on nonlinear Bayesian methods, these frictions do not improve the standard medium-scale DSGE model's ability to explain the macroeconomic dynamics during the Great Recession. The reason is that in the estimated model with financial frictions, the drastic post-2008 collapse of investment causes firms' leverage to decline. Taking the model at face value, this would trigger a narrowing of the credit spread, contradicting the observed persistently large credit spread throughout the post-2008 period. Additionally, the estimated model attributes only a minor role to risk shocks à la Christiano et al. (2014). These findings are confirmed independently for US and euro area data.

Suggested Citation

  • Boehl, Gregor & Strobel, Felix, 2024. "The empirical performance of the financial accelerator since 2008," Journal of Economic Dynamics and Control, Elsevier, vol. 167(C).
    • Handle: RePEc:eee:dyncon:v:167:y:2024:i:c:s0165188924001192
    DOI: 10.1016/j.jedc.2024.104927
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    More about this item

    Keywords

    Financial frictions; Great recession; Business cycles; Effective lower bound; Nonlinear Bayesian estimation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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