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The Financial Accelerator: Evidence using a procedure of Structural Model Design

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Abstract

We find empirical evidence of a financial accelerator using a data based procedure of Structural Model Design. Credit to firms, asset prices and aggregate economic activity interact over the business cycle in our empirical model of a dynamic economy. Furthermore, the interdependence between credit and asset prices creates a mechanism by which the effects of shocks persist and amplify. However, while innovations to asset prices and credit do cause short-run movements in production, and while real activity spurs credit, such innovations do not precede real economy movements in the long run. Hence, there obviously is a case for Modigliani-Miller in the long run.

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  • Roger Hammersland & Dag Henning Jacobsen, 2008. "The Financial Accelerator: Evidence using a procedure of Structural Model Design," Discussion Papers 569, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:569
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    1. Lown, Cara & Morgan, Donald P., 2006. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1575-1597, September.
    2. Bardsen, Gunnar & Klovland, Jan Tore, 2000. " Shaken or Stirred? Financial Deregulation and the Monetary Transmission Mechanism in Norway," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 563-583, December.
    3. Gunnar Bardsen & Jan Tore Klovland, 2000. "Shaken or Stirred? Financial Deregulation and the Monetary Transmission Mechanism in Norway," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 563-583, December.
    4. Beaudry, Paul & Portier, Franck, 2005. "The "news view" of economic fluctuations: Evidence from aggregate Japanese data and sectoral US data," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 635-652, December.
    5. Q. Farooq Akram & Gunnar Bärdsen & Øyvind Eitrheim, 2006. "Monetary policy and asset prices: to respond or not?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 279-292.
    6. Roger Hammersland, 2008. "Classical identification: A viable road for data to inform structural modeling," Discussion Papers 562, Statistics Norway, Research Department.
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    Cited by:

    1. Hammersland, Roger & Træe, Cathrine Bolstad, 2014. "The financial accelerator and the real economy: A small macroeconometric model for Norway with financial frictions," Economic Modelling, Elsevier, vol. 36(C), pages 517-537.
    2. Anundsen, André K. & Jansen, Eilev S., 2013. "Self-reinforcing effects between housing prices and credit," Journal of Housing Economics, Elsevier, vol. 22(3), pages 192-212.
    3. Roger Hammersland & Cathrine Bolstad Træe, 2011. "The Financial Accelerator and the real economy. Self-reinforcing feedback loops in a core macro econometric model for Norway," Discussion Papers 668, Statistics Norway, Research Department.
    4. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Financial variables and the real economy; The Financial Accelerator; Business fluctuations; Structural vector Error Correction modeling; Identification; Cointegration.;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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