Chapter 21 The financial accelerator in a quantitative business cycle framework

Ben S. Bernanke, Mark Gertler, Simon Gilchrist

    Research output: Contribution to journalReview article

    Abstract

    This chapter develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the framework exhibits a "financial accelerator", in that endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy. In addition, we add several features to the model that are designed to enhance the empirical relevance. First, we incorporate money and price stickiness, which allows us to study how credit market frictions may influence the transmission of monetary policy. In addition, we allow for lags in investment which enables the model to generate both hump-shaped output dynamics and a lead-lag relation between asset prices and investment, as is consistent with the data. Finally, we allow for heterogeneity among firms to capture the fact that borrowers have differential access to capital markets. Under reasonable parametrizations of the model, the financial accelerator has a significant influence on business cycle dynamics.

    Original languageEnglish (US)
    Pages (from-to)1341-1393
    Number of pages53
    JournalHandbook of Macroeconomics
    Volume1
    Issue numberPART C
    DOIs
    StatePublished - 1999

    Fingerprint

    Business cycles
    Financial accelerator
    Credit markets
    Lag
    Market frictions
    Business fluctuations
    Capital markets
    Price stickiness
    Endogenous development
    Firm heterogeneity
    Asset prices
    Macroeconomy
    Monetary policy
    Dynamic general equilibrium model
    Market work

    Keywords

    • business fluctuations
    • financial accelerator
    • monetary policy

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Economics, Econometrics and Finance (miscellaneous)

    Cite this

    Chapter 21 The financial accelerator in a quantitative business cycle framework. / Bernanke, Ben S.; Gertler, Mark; Gilchrist, Simon.

    In: Handbook of Macroeconomics, Vol. 1, No. PART C, 1999, p. 1341-1393.

    Research output: Contribution to journalReview article

    Bernanke, Ben S. ; Gertler, Mark ; Gilchrist, Simon. / Chapter 21 The financial accelerator in a quantitative business cycle framework. In: Handbook of Macroeconomics. 1999 ; Vol. 1, No. PART C. pp. 1341-1393.
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