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The price of capital and the financial accelerator

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  • Pancrazi, Roberto
  • Seoane, Hernán D.
  • Vukotic, Marija

Abstract

The price of capital is a key determinant of the financial accelerator, a transmission mechanism of shocks generated through the capital accumulation process of entrepreneurs that borrow in credit markets with frictions. This paper shows that the procedure of approximating the price of old capital by the net-of-depreciation price of new capital, as used in many articles since Bernanke et al. (1999), has profound implications when the capital depreciation rate is positive. When accounting for the appropriate price of capital, the effects of the financial accelerator are even stronger than originally assessed.

Suggested Citation

  • Pancrazi, Roberto & Seoane, Hernán D. & Vukotic, Marija, 2016. "The price of capital and the financial accelerator," Economics Letters, Elsevier, vol. 149(C), pages 86-89.
    • Handle: RePEc:eee:ecolet:v:149:y:2016:i:c:p:86-89
    DOI: 10.1016/j.econlet.2016.10.022
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    References listed on IDEAS

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    Cited by:

    1. Klára Baková, 2018. "The Financial Accelerator in Europe after the Financial Crisis," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 4(2), pages 143-155.
    2. Barrales-Ruiz, Jose & Mohammed, Mikidadu, 2021. "Financial regimes and oil prices," Resources Policy, Elsevier, vol. 74(C).
    3. Peiris, M.U. & Shirobokov, A. & Tsomocos, D.P., 2024. "Does “Lean Against the Wind” monetary policy improve welfare in a commodity exporter?," Journal of International Money and Finance, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    Financial accelerator; Business fluctuations; Investment adjustment cost;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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