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Financial accelerator effects in UK business cycles

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  • Simon Hall

Abstract

This paper uses a dynamic general equilibrium model incorporating financial accelerator effects to examine interactions between corporate investment and financial conditions in recent UK business cycles. The paper notes correspondences in recent recessions between the behaviour of business investment, the financial health of the corporate sector and some indicators of the availability of finance. It then investigates whether a financial accelerator model, developed by Bernanke, Gertier and Gilchrist (1999), can shed light on key features of recent recessions. The model is calibrated to broadly match UK financial conditions prevailing at the start of recent recessions, and is simulated with and without its financial accelerator mechanism. Simulations of the model incorporating financial accelerator effects seem consistent with some of the observed features of corporate real and financial behaviour in previous downturns.

Suggested Citation

  • Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
    • Handle: RePEc:boe:boeewp:150
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2002/wp150.pdf
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    References listed on IDEAS

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    3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
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    Citations

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    Cited by:

    1. José Alberto Fuinhas, 2003. "O canal do crédito, o sobreendividamento e as crises económicas," Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) 03/2003, Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal).
    2. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
    3. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
    4. Martha R. López & Juan D. Prada & Norberto Rodríguez Niño, 2008. "Financial Accelerator Mechanism in a Small Open Economy," Borradores de Economia 4992, Banco de la Republica.
    5. Martha R. López P & Norberto Rodríguez N., 2008. "Financial Accelerator Mechanism: Evidence for Colombia," Borradores de Economia 481, Banco de la Republica de Colombia.
    6. Gábor Pintér, 2019. "House Prices and Job Losses," The Economic Journal, Royal Economic Society, vol. 129(618), pages 991-1013.
    7. Holtemöller, Oliver & Schult, Christoph, 2018. "Expectation formation, financial frictions, and forecasting performance of dynamic stochastic general equilibrium models," IWH Discussion Papers 15/2018, Halle Institute for Economic Research (IWH).
    8. Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "Modeling Credit Aggregates," Working Papers 90, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 163-177.
    10. Gavin Cameron & Chris Wallace, 2002. "Macroeconomic Performance in the Bretton Woods Era and After," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 18(4), pages 479-494.
    11. Nolan, Charles & Thoenissen, Christoph, 2009. "Financial shocks and the US business cycle," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 596-604, May.
    12. Denise Côté & Christopher Graham, 2007. "Corporate Balance Sheets in Developed Economies: Implications for Investment," Staff Working Papers 07-24, Bank of Canada.
    13. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
    14. Bojan Markovic, 2006. "Bank capital channels in the monetary transmission mechanism," Bank of England working papers 313, Bank of England.
    15. Simon Hall & Anne Vila Wetherilt, 2002. "The role of corporate balance sheets and bank lending policies in a financial accelerator framework," Bank of England working papers 166, Bank of England.
    16. Sylvia Kaufmann & Maria Teresa Valderrama, 2008. "Bank lending in Germany and the UK: are there differences between a bank-based and a market-based country?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 266-279.

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