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We present new evidence on the macroeconomic effects of changes in microprudential bank capital requirements, using confidential regulatory data from the Basel I and II regimes in the United Kingdom. Our central result is that an increase in capital requirements lowered lending to firms and households, reduced aggregate expenditure and raised credit spreads. A financial accelerator effect is found to have amplified the macroeconomic responses to shifts in bank credit supply. Results from a counterfactual experiment that links capital requirements to house prices and mortgage spreads indicate that tighter macroprudential policy would have had a moderating effect on house price and mortgage lending growth in the early 2000s, with easier monetary policy acting to offset its contractionary effects on output.

During period of financial stress, the effect of financial stress shocks on economic activity might be different from what is usually observed in normal times. This paper investigates the transmission of financial stress episodes on the macroeconomy during stressed and normal periods and it explores how these events are transmitted to the Eurozone. We find that, a detrimental US financial shock leads to a worsening in economic and financial conditions both domestically and in the Eurozone. In addition, during turmoil times, financial accelerator mechanism amplifies and propagates the transmission of US financial stress shocks to the Eurozone by reducing its economic activity. Moreover, small financial stress shocks, rather than infrequent large ones, are able to create large fluctuations in inflation rates. Last, the effect of a detrimental shock in financial conditions has larger negative effects in the economy compared with the positive effects that would be generated by a beneficial shock in financial conditions.

We estimate a medium-scale DSGE model, including a financial accelerator and the search and matching framework in labor markets, for the Korean economy, using the Bayesian technique. The estimated model shows that the recent sluggishness in GDP growth can be explained by slow technology growth, and the decline in CPI inflation is affected by a falling markup in domestic homogeneous goods production and a negative intertemporal consumption preference. Although wages, unemployment, and total labor hours are influenced by various factors, households' weak bargaining power causes a slow recovery in wages, while pushing the unemployment rate down. There was also a spillover from non-big-5 to big-5 firms during the global financial crisis, while monetary and fiscal policy has been mostly conservative in the post-crisis period.

In this paper we identify and measure the effects of credit shocks in a small open economy. To incorporate information from a large number of economic and financial indicators we use the structural factor-augmented VARMA model. In the theoretical framework of the financial accelerator, we approximate the external finance premium with credit spreads. We find that an adverse global credit shock generates a significant and persistent economic slowdown in Canada; the Canadian external finance premium rises immediately while interest rates and credit measures decline. Variance decomposition reveals that the credit shock has an important effect on real activity measures, including price and leading indicators, and credit spreads. On the other hand, an unexpected increase in the Canadian external finance premium shows no significant effect in Canada, suggesting that the effects of credit shocks in Canada are essentially caused by the unexpected changes in foreign credit market conditions. Given the identification procedure our structural factors have an economic interpretation.

This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the "mechanism of exchange." It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively, these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to reach prices at which peoples' trading plans are mutually compatible. Banks affect macroeconomic performance in this economy because their lending activities facilitate the entry and influence the exit decisions of trading firms. Both entry and exit have ambiguous effects on performance, and we resort to computational analysis to understand how they are resolved. Our analysis draws an important distinction between normal and worst-case scenarios, with the economy experiencing systemic breakdowns in the latter. We show that banks can provide a "financial stabilizer" that more than counteracts the familiar financial accelerator, and that the stabilizing role of the banking system is particularly apparent in worst-case scenarios. In line with this result, we also find that under less restrictive lending standards banks are able to more effectively improve macroeconomic performance in the worst-case scenarios.

In the financial accelerator literature pioneered by Bernanke et al. (1999) entrepreneurs are myopic and risk-neutral, and loans have a predetermined rate of return by assumption. We relax these assumptions and derive the optimal state-dependent loan contract for forward-looking risk-averse entrepreneurs. We show that financial frictions deliver less amplification under the optimal state-dependent contract.

We add the Bernanke–Gertler–Gilchrist model to a modified version of the Smets–Wouters model of the U.S. in order to explore the causes of the banking crisis. The innovation of this article is estimating the model using unfiltered data allowing for non-stationary shocks in order to replicate how the model predicts the crisis. We find that ‘traditional shocks’ account for most of the fluctuations in macroeconomic variables; the non-stationarity of the productivity shock plays a key role. Crises occur when there is a ‘run’ of bad shocks; based on this sample they occur on average once every 64 years and when they occur around 10% are accompanied by financial crisis. Financial shocks on their own, even when extreme, do not cause crises – provided the government acts swiftly to counteract such a shock as happened in this sample.

Accelerators are rapidly proliferating around the world. Often confused with incubators but are rather the private sector versions of them, accelerators are regarded as the key contributor to the success rate of innovative business startups and entrepreneurship ecosystem. The current paper aims to provide an overview of currently available literatures on accelerators. It covers discussions on accelerators such as their definitions and functions, value propositions and business models in comparison with other startup assistance initiatives such as incubators. The latter part concentrates on research on accelerator performance and discovers that intervention of accelerators is relatively positive. Researchers agree that performance measurement must take into account of different foci and objectives of different types of accelerators. Although little empirical study has been done on accelerators due to newness of the phenomenon the paper finds that knowledge gap in accelerator phenomenon is narrowing given results of intense efforts held recently by research institutions.

The recent financial crisis highlighted the need to deepen our understanding of the impact of the financial intermediation sector on the real economy. We examine the quantitative implications of financial intermediation and firm's financing frictions in explaining the observed cyclical properties of both real and financial variables. We find that a modified version of the financial intermediation framework of Gertler and Karadi (2011) augmented with financing frictions in production does a good job in matching the unconditional moments of financial fluctuations without compromising key real co-movements. Our results are relevant for macro-prudential policy analysis as they underscore the importance of carefully identifying the sources of aggregate fluctuations in models in which financial intermediaries and financial frictions play a non-trivial role.

This study investigates whether the effects of monetary policy are amplified by its impact on bank balance-sheet strength. Or, in other words, it tests whether the bank-lending channel of the monetary transmission mechanism, as reformulated by Disyatat (2011), works. To this end, panel vector autoregressions with high-frequency identification and univariate panel regressions are applied to data for Poland. Counterfactual exercises show that the analyzed channel accounts for about 23% of a decrease in lending following a monetary policy impulse. This is another piece of evidence showing that the financial accelerator works in both the nonfinancial and the financial sector. In some cases it can make the interplay between monetary and macroprudential policy nontrivial.

This paper studies macro credit policies within the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that the efficacy of cyclical taxes on LTV ratios depends upon the nature of the underlying loan contract. If the loan contract contains equity-like features such as indexation to aggregate conditions, then there is little role for cyclical taxation. But if the loan contract is not indexed to aggregate conditions, then there are substantial gains to procyclical taxes on LTV ratios.

In this paper, we explore the role of financial intermediation malfunction in macroeconomic fluctuations in Japan. To this end we estimate, using Japanese data, a financial accelerator model in which the balance sheet conditions of entrepreneurs in a goods-producing sector and those of a financial intermediary affect macroeconomic activity. We find that shocks to the balance sheets of the two sectors have been quantitatively playing important role in macroeconomic fluctuations by affecting lending rates and aggregate investments. Their impacts are prominent in particular during financial crises. Shocks to the entrepreneurs’ balance sheets have played a key role in lowering investment in the bubble burst during the early 1990s and in the global financial crisis during the late 2000s. Shocks to the financial intermediaries’ balance sheets have persistently lowered investment throughout the 1990s.

In this paper, I study how alternative assumptions about expectation formation can modify the implications of financial frictions for the real economy. I incorporate a financial accelerator mechanism into a version of the Smets and Wouters (2007) DSGE framework and explore the properties of the model assuming, on the one hand, complete rationality of expectations and, alternatively, several learning algorithms that differ in terms of the information set used by agents to produce the forecasts. I show that the implications of the financial accelerator for the business cycle may vary depending on the approach to modeling the expectations. The results suggest that the learning scheme based on small forecasting functions is able to amplify the effects of financial frictions relative to the model with Rational Expectations. Specifically, I show that the dynamics of real variables under learning is driven to a significant extent by the time variation of agents’ beliefs about financial sector variables. During periods when agents perceive asset prices as being relatively more persistent, financial shocks lead to more pronounced macroeconomic outcomes. The amplification effect rises as financial frictions become more severe. At the same time, a learning specification in which agents use more information to generate predictions produces very different asset price and investment dynamics. In such a framework, learning cannot significantly alter the real effects of financial frictions implied by the Rational Expectations model.

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. (C) 2016 Elsevier B.V. All rights reserved. Hernán Seoane gratefully acknowledges support from Ministerio de Economía y Competitividad (Spain), grants ECO2014-56676-C2-1-P, MDM 2014-0431, and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444).

Within the context of a financial accelerator model, we model time-varying uncertainty (i.e. risk shocks) through the use of a mixture normal model with time variation in the weights applied to the underlying distributions characterizing entrepreneur productivity. Specifically, we model capital producers (i.e. the entrepreneurs) as either low-risk (a relatively small second moment of productivity) or high-risk (a relatively large second moment of productivity) and the fraction of both types is time-varying. We show that this modeling feature implies that the aggregate distribution of productivity shocks is non-normal and has time varying kurtosis and skewness; both of these features have important effects on equilibrium characteristics. In particular, after estimating the steady-state share and the change in the fraction of risky entrepreneurs, we show that a small change in the fraction of risky types can result in a large quantitative effect of a risk shock relative to standard models for both financial and real variables. Moreover, the bankruptcy rate and the risk premium in the economy are very sensitive to a change in the composition of entrepreneurs.

International audience; We develop a business cycle model where endogenous firm creation stems from two credit market frictions. First, entrepreneurs search for a lending relationship with a bank. Second, an optimal debt contract with monitoring is implemented. We analyze the interplay between both frictions, and embed it into an otherwise standard business cycle model which we estimate with Bayesian techniques. We find that uncertainty shocks are a prime contributor to business cycle fluctuations in the US, not only for macro-financial aggregates but also for firm creation. Moreover, we point out that the credit search friction dampens the financial accelerator mechanism because default may imply the end of the lending relationship. © 2018 Elsevier B.V.

We focus on current or future financials reforms impacts on the formation of interest rates in Central Africa. These reforms aim to restore the efficient operation of the interest rate channel and to revitalize credit channels and asset prices through the development of the financial system and the abandonment of the principle of double intervention by the central bank. For this purpose, we have built a CEMAC DSGE model with a financial accelerator phenomenon on the credit demand side and a collateral constraint on the supply side. The simulations carried out on the intensification of the financial inclusion of firms and households, the collateral reform and the quality of information show an improvement of: (i) banking relay of monetary impulses on the interbank market; (ii) the central bank's reaction to different shocks and; (iii) the response of costs and returns of financial assets to these shocks. However, the disconnection of the variables from the real sphere to the monetary impulses ultimately raises the need for a financial education strategy, beyond the problem of the fragmentation of the money market that needs to be addressed.

We uncover a new fact: U.S. banks counter-cyclically vary the ratio of charge-offs to defaulted loans. The variance of this ratio is roughly 15 times larger than that of GDP. Canonical financial accelerator models cannot explain this variance. We show that introducing stochastic default costs into the model helps to resolve the discrepancy with the data. Estimating the augmented model using Bayesian techniques reveals that the estimated default cost shocks not only help account for the variance of the banking data but also help account for a significant fraction of the U.S. business cycle between 1984 and 2015.

We exploit a recurring natural experiment to identify the effects of money supply shocks: maritime disasters in the Spanish Empire (1531-1810) that resulted in the loss of substantial amounts of monetary silver. A one percentage point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. The empirical evidence highlights nominal rigidities and credit frictions as the primary monetary transmission channels. Our model of the Spanish economy confirms that each of these two channels explain about half of the initial output response, with the credit channel accounting for much of its persistence.

This paper introduces a new disturbing element, the bubble asset, into the basic financial accelerator model by Bernanke et al. (1999). Through a contract between an entrepreneur and a financial intermediary, the optimal leverage ratio becomes an increasing function of bubble surviving probability. Decline in a bubble asset's surviving probability shock affects an entrepreneur's optimal leverage ratio through the following two channels: depriving low productivity firms of a profit opportunity from bubble asset investment and pushing up the financial intermediaries' cost associated with bubble bust, leading to an increased external finance premium. Both channels result in a deterioration in entrepreneurial net worth, causing persistent and strong investment declines in the economy. Furthermore, simulation results show that an economy with higher bubble surviving probability at the steady state suffers from prolonged and severe stagnation from a bubble burst shock due to entrepreneurs' high deleverage and persistent net-worth deterioration.

We have incorporated a financial accelerator mechanism operating through investments in the business sector in a dynamic macroeconometric model of the Norwegian economy. In this new and amended model aggregated credit and equity prices are determined simultaneously in a system characterized by a two-directional contemporaneous causal link, which has been designed and estimated by a new procedure for simultaneous structural model design. Combined with a mechanism where credit and asset prices are mutually influenced by real investments, this creates a financial accelerator amplified by a credit-asset price spiral. Simulations illustrate how the introduction of a financial accelerator significantly reinforces and extends the economic cycles in projections and forecasts, in particular when confronted by a severe shock. Furthermore, monetary policy has a markedly stronger effect in the short and medium term, while the impact of fiscal policy is affected to a relatively small degree as it is more remotely linked to financial markets.

We present a simple model that quantitatively replicates the behavior of stock prices and business cycles in the United States. The business cycle model is standard, except that it features extrapolative belief formation in the stock market, in line with the available survey evidence. Extrapolation amplifies the price effects of technology shocks and - in response to a series of positive technology surprises - gives rise to a large and persistent boom and bust cycle in stock prices. Boombust dynamics are more likely when the risk-free interest rate is low because low rates strengthen belief-based amplification. Stock price cycles transmit into the real economy by generating inefficient price signals for the desirability of new investment. The model thus features a "financial accelerator", despite the absence of financial frictions. The financial accelerator causes the economy to experience persistent periods of over- and under-accumulation of capital.

This paper uses detailed firm-level data to show that monetary policy affects employment through housing collateral and corporate debt. Our research design exploits the fact that many small and medium-sized enterprises use their directors' homes as a key source of collateral for corporate loans, but directors typically live in a different region to their firm. This spatial separation of firms from their collateral allows us to distinguish the collateral channel from local demand effects. We find that younger and more levered firms with higher exposure to housing collateral fluctuations adjust employment the most following a change in monetary policy. The collateral channel explains a sizeable share of the aggregate employment response.

Using a Markov‐switching VAR, we show that the effects of uncertainty shocks on output are four times higher in a regime of economic distress than in a tranquil regime. We then provide a structural interpretation of these facts. To do so, we develop a business cycle model in which agents are aware of the possibility of regime changes when forming expectations. The model is estimated using a Bayesian minimum distance estimator that minimizes, over the set of structural parameters, the distance between the regime‐switching VAR‐based impulse response functions and those implied by the model. Our results point to worsening credit‐market conditions that amplify shocks during distress periods. Finally, we show that the expectation effect of regime switching in financial conditions is an important component of the financial accelerator mechanism. If agents are more pessimistic about future financial conditions, then the output effects of shocks are amplified. Uncertainty shocks regime switching financial frictions expectation effects C32 E32 E44

We examine the extent to which foreign economic policy uncertainty shocks are transmitted via the capital inflows, credit conditions and business confidence channels to impact South African GDP growth. Evidence shows that heightened foreign economic policy uncertainties deter both debt and equity inflows into the domestic economy, lowers business confidence, tighten credit conditions. These effects reduce GDP growth. There is a presence of endogenous credit cycles or the financial accelerator mechanism in propagating the initial economic policy uncertainty shock. The tightening in credit conditions can result in higher external premiums for raising capital in financial markets. Furthermore, banking and non-banking flows decline in response to heightened foreign policy uncertainty shocks. Positive economic policy uncertainty shocks have asymmetric effects on equity inflows depending on the size of the shock. Evidence suggests that elevated foreign economic policy uncertainty deters equity and debt inflows into South Africa. Equity inflows amplify the tightening of credit conditions compared to debt inflows. Equity and debt inflows propagate the adverse effects of heightened economic policy uncertainty via tight credit conditions. The implication is that firms with poorer indicators of creditworthiness will be more constrained than those which are creditworthy, and this can negatively affect investment and growth.

Imperfect information in credit markets is a quantitatively important source of macroeconomic fragility. We calibrate a dynamic model with uninformed debt investors. A deterioration in the profit outlook makes investors pessimistic about firm creditworthiness. In turn, firms perceive that debt is underpriced and cut back investment. We show that: 1) the model matches the size and cyclical variation of credit spreads; 2) imperfect information accounts for about half of the spike in spreads and one-fifth of the contraction in aggregate investment during the US financial crisis; 3) the economic costs of imperfect information for firm value and investment are substantial.

Bu çalışmanın amacı, 2006 Ocak-2018 Ocak döneminde bankacılık sektöründe faaliyet gösteren bankaların kaldıraç yapısının döngüselliğini araştırmaktır. Döngüselliğin tespiti için, kaldıraç oranı ve aktif değişimi arasındaki ilişki regresyon analizi ile incelenmiştir. Regresyon analizi tahminleri, aktif değişiminin kaldıraç oranı değişimini pozitif yönlü ve istatistiki olarak anlamlı bir şekilde etkilediğine işaret etmektedir. Bu sonuç, kaldıracın döngüsel olduğunu göstermektedir. Kaldıracın döngüselliği, banka varlıklarının büyüme gösterdiği dönemlerde, kaldıraç oranının artmasına ve finansal çevrimler ile kredi çevrimlerinin birbirini tetiklemesine sebep olabilmektedir. Bu şekilde, kaldıracın finansal hızlandırma mekanizma olmasından yola çıkılarak, finansal genişleme dönemlerinde döngüsel karşıtı bir politika belirlenmesi ile makro riskleri azaltabilen önlemler geliştirilebileceği söylenebilir.

This paper proposes a tractable financial accelerator New Keynesian DSGE modelthat allows for closed-form solutions. In the presence of financial frictions, theNew Keynesian Phillips curve features a flat slope with respect to the output gapand is strongly forward-looking. All shocks cause endogenous cost-push effects inthe Phillips curve, leading to larger inflation responses and a breakdown of divinecoincidence. The central bank's contemporaneous trade-off between output gap andinflation stabilization is aggravated. Optimal monetary policy is strongly forward-looking and geared towards inflation stabilization.

An accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown. Through the implementation of an Agent Based Model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large-scale crisis events. A two-step computational approach is proposed which performs (i) a pattern search of “double dip” episodes and (ii) counter-factual simulations implementing unconventional monetary policy. The main results can be summarized as follow: a) sudden and sharp increases of the policy rate can generate recessions; b) after a crisis, returning too soon and too quickly to a normal monetary policy regime can generate a “double dip” recession, while c) keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown.

We employ a micro-founded and stock-and-flow-consistent model to study the impact of a higher leverage ratio on the South African economy. The model provides a rich representation of institutional balance sheets. The relationship between bank capital, risk-taking behaviour, lending spreads, and economic activity is highlighted. The financial accelerator mechanism operates through the balance sheets of all economic institutions. The introduction of a higher leverage ratio is likely to generate negative economic impacts in the short run.

From the perspective of principal-agent, the theory of financial acceleration holds that due to the defects of the financial market, external shocks will be amplified by the financial market and accelerate the transmission in the real economy, and the impact on small enterprises is greater than that on large enterprises. According to the theory of financial deceleration, the agency cost caused by financial friction is counter-cyclical, which restrains credit scale to some extent, prevents excessive debt, and thus alleviates external shocks. According to the empirical analysis of panel data of iron and steel enterprises and the existing empirical results of the real estate industry, it is found that there is no financial accelerator effect or financial reducer effect in the field of iron and steel enterprises. China’s financial accelerator is more focused on bubbly assets where growth is expected and continues to be overheated despite policy tightening. That would trigger a bigger debt crisis and greater economic volatility.

In models with financial frictions, state-contingent contracts stabilize the business cycle relative to contracts with predetermined repayments. We show that this finding depends on whether predetermined repayments are set in real or nominal terms. State-contingent contracts may amplify supply-driven recessions compared to contracts set in nominal terms.

Default recovery rates in the US are highly volatile and pro-cyclical. We show that state-of-the-art models with a Bernanke-Gertler-Gilchrist financial accelerator mechanism imply that recovery rates are flat over the cycle. We propose a model where financially-constrained entrepreneurs face an idiosyncratic cost of redeploying liquidated capital. The resulting endogenous liquidation costs magnify the effect of the financial accelerator. We fit the model to US data and find that it explains a substantial amount of variation in recovery rates, including their sharp contraction at the onset of the Great Recession. Our mechanism delivers a more flexible relationship between credit spreads and macroeconomic variables and leads to novel policy implications about the effectiveness of subsidies for liquidated assets.

This paper investigates whether credit constraints in the US economy amplify the international propagation of US financial shocks. We model the dynamics of the US economy jointly with global macroeconomic and financial variables using a threshold vector autoregression. This model captures regime-specific dynamics conditional on the severity of credit constraints in the US economy. We identify three main episodes of tight credit in US financial history over the past thirty years. These occur in the late-1980s, in the early 2000s, and during the 2007–09 financial crisis. We find that US financial shocks are associated with a significant contraction in global economic activity in times of tight credit. By contrast, there is little impact of US financial shocks on the global economy in normal times. This asymmetry highlights an international dimension of the US financial accelerator mechanism.

We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distress.

This paper examines whether financial conditions of the non-financial corporate sector can explain why the recovery from recessions in the United States is slower since the mid-1980s. Leverage by the corporate sector has increased significantly since the financial deregulation of the mid-1980s. Empirical evidence shows that slow recoveries are associated with a significant drop in the growth rates of investment and bank loans, and with a surge in the growth rates of corporate bonds. In an estimated dynamic stochastic general equilibrium model with a financial accelerator, counterfactual experiments based on estimates of two samples – 1965–1983 and 1984–2007 – show that the non-financial corporate indebtedness affects only marginally the speed of the recovery in the two samples. ispartof: Journal of Economic Dynamics & Control vol:70 pages:54-85 status: published

Using a large data set on investments and accounting information for private firms, we put the balance sheet theory to test. We find that firm cash flow has a positive impact on investment and that the effect is enhanced for firms which are more likely to be financially constrained. We also find that the investment-cash flow sensitivity is significantly larger and more persistent during the first half of our sample period, which includes a severe banking crisis and recession. Our results suggest that financial constraints matter more in periods characterized by adverse economic conditions.

This paper develops a dynamic stochastic general equilibrium model to examine the impact of macroprudential regulation on bank’s financial decisions and the implications for the real sector. I explicitly incorporate costs and benefits of capital requirements. I model an occasionally binding capital constraint and approximate it using an asymmetric non linear penalty function. This friction means that the banks refrain from valuable lending. At the same time, countercyclical buffers provide structural stability to the financial system. I show that higher capital requirements can dampen the business cycle fluctuations. I also show that stronger regulation can induce banks to hold buffers and hence mitigate an economic downturn as well. Increasing the capital requirements do not seem to have an adverse effect on the welfare. Lastly, I also show that switching to a countercyclical capital requirement regime can help reduce fluctuations and raise welfare.

In the absence of micro-data in the public domain, new aggregate models for the UK’s mortgage repossessions and arrears are estimated using quarterly data over 1983–2014, motivated by a conceptual double trigger frame framework for foreclosures and payment delinquencies. An innovation to improve on the flawed but widespread use of loan-to-value measures, is to estimate difficult-to-observe variations in loan quality and access to refinancing, and shifts in lenders’ forbearance policy, by common latent variables in a system of equations for arrears and repossessions. We introduce, for the first time in the literature, a theory-justified estimate of the proportion of mortgages in negative equity as a key driver of aggregate repossessions and arrears. This is based on an average debt–equity ratio, corrected for regional deviations, and uses a functional form for the distribution of the debt–equity ratio checked on Irish micro-data from the Bank of Ireland, and Bank of England snapshots of negative equity. We systematically address serious measurement bias in the ‘months-in-arrears’ measures, neglected in previous UK studies. Highly signifi- cant effects on aggregate rates of repossessions and arrears are found for the aggregate debt–service ratio, the proportion of mortgages in negative equity and the unemployment rate. Economic forecast scenarios to 2020 highlight risks faced by the UK and its mortgage lenders, illustrating the usefulness of the approach for bank stress-testing. For macroeconomics, our model traces an important part of the financial accelerator: the feedback from the housing market to bad loans and hence banks’ ability to extend credit.

We show that price-cost margins for European banks are countercyclical after controlling for monetary policy, interest rate risk, and several banking industry and bank-specific factors. Our results support the existence of a “financial accelerator” at work in European economies.

I characterize cyclical fluctuations in the cross-sectional dispersion of firm-level productivity. Using the micro-estimated dispersion, or “risk”, stochastic process as an input to a baseline small-scale financial accelerator model, I assess how well the model reproduces cyclical movements in both real and financial conditions of the economy. In the model, risk shocks calibrated to micro data lead to empirically-relevant steady-state leverage, a financial measure typically thought to be closely associated with real activity. In terms of aggregate quantities, pure risk shocks in the small-scale general equilibrium model account for a notable share of GDP fluctuations — roughly 5%. The volatility of the risk process I measure using micro data is, remarkably, not very different compared to recent estimates of risk shocks based on medium- or large-scale models using macroeconomic data. These seemingly contrasting starting points for measuring risk shocks do not imply any dichotomy at the core of a popular class of DSGE financial frictions models. Rather, it is the particular transmission channels in financial-frictions models — whether small scale or medium scale — that are critical for aggregate quantity fluctuations to arise based on risk shocks.

In this paper, I explore the dynamics of real estate market fluctuations and business cycle co-movements in a neoclassical setting. Applying a dynamic stochastic general equilibrium model of collateral constraints with asset reallocation to Japan, I find that public policy shocks account well for the business cycle dynamics. In particular, taxes on land holdings of households mimic the impact of a housing preference shock, and if volatile enough, can trigger large asset price fluctuations. However, in the absence of volatility, the impact on prices is intrinsically linked to the persistence of shocks. Dependence on fixed assets such as real estate to secure collateral-based financing significantly amplifies the effect of initial shocks on the real macro aggregates. The financial accelerator works through the “redistribution channel,” shifting a large fraction of the collateral between constrained and unconstrained agents in response to an external stimuli.

This paper studies the role of financial openness and the financial accelerator in the sectoral dynamics generated in a small open economy following capital inflow. The results show that where the financial accelerator exists, capital inflow in response to a foreign interest rate shock ultimately results in intersectoral resource transfer that is favorable to the nontradable sector under different monetary policies; the magnitude of the expansion in the nontradable sector being greater under a higher degree of financial openness. The study also finds that, in comparison to CPI inflation targeting, nontradable inflation targeting is better at mitigating resource transfers toward production of nontradables, and at reducing and stabilizing both nontradable inflation and CPI inflation. Furthermore, the findings suggest that the financial accelerator mechanism matters for the effectiveness of monetary policy in addressing dynamics pertinent to the Dutch disease phenomenon, such that CPI inflation targeting is only effective in such a scenario where the financial accelerator is non-existent, and that nontradable inflation targeting operates more effectively in the absence of the financial accelerator as well.

The monetary policy transmission mechanism changed after the 2008 crisis. Evidence shows that credit markets and the banking system play now a predominant role in the pass-through of monetary policy to the real economy. This paper examines the monetary transmission mechanism in a Dynamic Stochastic General Equilibrium (DSGE) model that; on the one hand, includes a financial accelerator that operates through collateral constraints in credit markets, and, on the other hand, also presents regulatory constraints on the banking sector. Results show that the financial accelerator effects make monetary policy more effective, in line with the rest of the literature. However, the introduction of banks reduces part of this effectiveness due to regulatory requirements on bank capital, as observed during the crisis time. Furthermore, an optimal monetary policy analysis concludes that when adding all these ingredients into the model, monetary policy should respond more strongly to output and less to inflation than in a standard model new Keynesian model, due to the inclusion of extra distortions that create welfare trade-offs among agents.

We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in different markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market, which interact with the financial accelerator, possibly leading to firm bankruptcies, banking crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential framework is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banks’ liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial instability by employing a new unconventional monetary-policy tool involving active management of the interest-rate corridor in the interbank market.

This paper investigates the effects of mark-to-market accounting for risky liabilities on the business cycle. While marking assets to market results in an amplification of the business cycle, as is well-known from the financial accelerator model à la Bernanke, Gertler, and Gilchrist [Bernanke, B. S., M. Gertler, and S. Gilchrist. 1999. “The Financial Accelerator in a Quantitative Business Cycle Framework.” In Handbook of Macroeconomics, edited by J. Taylor and M. Woodford, Elsevier.], allowing for debt with a specific maturity priced at market value generates ambiguous effects. Changes in the market price of debt affects firms’ net worth since the accounting principle takes the perspective of repurchasing debt. This is called the prolongation channel of debt. Real economic activity is attenuated as long as asset and debt prices move in the same direction, whereas the response of debt prices is stronger. This happens for a monetary policy shock or a shock to total factor productivity. Amplification occurs if both prices move in opposite directions, as is the case for a demand shock. The implications for the business cycle eventually depend on the occurrence of shocks. Implementing mark-to-market accounting for liabilities in a model for the US yields a higher volatility of the business cycle.

International audience; We advance the idea that the predator-prey dynamics that take place among key market agents play an important role in explaining financial crises. As such, we posit that financial markets evolve through fault lines involving toxic behaviors (such as deceit), toxic products (such as predatory mortgages) and inefficient regulations. We provide data to show that the puzzle of the lack of congruence between the market behaviors and what some economic models predict at times of financial crises may be the result of predator-prey interplays, and of so-called “predatory cells”, which are under the influence of financial accelerators.

Contract enforceability in financial markets often depends on the aggregate actions of agents. For example, high default rates in credit markets can delay legal enforcement or reduce the value of collateral, incentivizing even more defaults and potentially affecting credit supply. We develop a theory of credit provision in which enforceability of individual contracts is linked to aggregate behavior. The central element behind this link is enforcement capacity, which is endogenously determined by investments in enforcement infrastructure. Our paper sheds new light on the emergence of credit crunches and the relationship between enforcement infrastructure, economic growth, and political economy distortions.

This dissertation examines the impacts of monetary shocks on investment decisions of firms located in Brazil to test the presence of the financial accelerator. Because of this, after a brief review of the literature, limiting the scope of transmission via the balance sheet channel, a panel consisting of Brazilian firms from 2005 to 2017 were tested. Regression control variables include control of the effect of the BNDES on the financial leverage of firms. After tests performed under reasonable levels of significance, the resources generated internally by the firm's operations were the only variable that impacted the investments. The literature that discusses the impact of BNDES on the Brazilian capital market is also revisited in order to corroborate the results obtained in the tests. O presente trabalho examina os impactos de choques monetários sobre decisões de investimentos de firmas localizadas no Brasil para testar se existe a presença do acelerador financeiro. Para isto, após uma breve revisão da literatura, limitando o escopo de transmissão via canal do balanço, um painel contendo firmas brasileiras de 2005 a 2017 foi testado. Dentre as variáveis de controle da regressão, inclui-se o controle do efeito do BNDES sobre a alavancagem financeira das firmas. Após testes realizados sob níveis de significância razoáveis, os recursos gerados internamente pelas operações das firmas é a única variável que impacta os investimentos. A literatura que discute o impacto do BNDES no mercado de capitais brasileiro também é revisitada de modo a corroborar os resultados obtidos nos testes.