Financial shocks and the US business cycle

Nolan, C. and Thoenissen, C. (2009) Financial shocks and the US business cycle. Journal of Monetary Economics, 56(4), pp. 596-604. (doi: 10.1016/j.jmoneco.2009.03.007)

Abstract

Employing the financial accelerator (FA) model of Bernanke et al. [1999. The Financial accelerator in a quantitative business cycle framework. In: Taylor, J.B., Woodford, M. (Eds.), Handbook of Macroeconomics, vol. 1C. Handbooks in Economics, vol. 15. Elsevier, Amsterdam, pp. 1341–1393] enhanced to include a shock to the FA mechanism, we construct and study shocks to the efficiency of the financial sector during post-war US business cycles. These shocks are found to (i) be very tightly linked with the onset of recessions, more so than TFP or monetary shocks; (ii) remain contractionary after recessions have ended; (iii) account for a large part of the variance of GDP; (iv) be generally much more important than money shocks and (v) be strongly negatively correlated with the external finance premium.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Nolan, Professor Charles
• Authors: Nolan, C., and Thoenissen, C.
• Subjects: H Social Sciences > HB Economic Theory
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Monetary Economics
• ISSN: 0304-3932
• ISSN (Online): 1873-1295
• Published Online: 07 April 2009