Fleshing out the monetary transmission mechanism : output composition and the role of financial frictions
Title: Fleshing out the monetary transmission mechanism : output composition and the role of financial frictions
Publisher: Ohio State Univ Press
Citation: Journal of Money Credit and Banking, 2006, Vol. 38, No. 8, pp. 2099-2133
Financial frictions affect the way in which different macroeconomic series respond to a monetary policy shock. We embed the financial accelerator of Bernanke, Gertler, and Gilchrist (1999) into a medium-scale DSGE model and evaluate the relative importance of financial frictions in explaining monetary transmission. Specifically, we apply minimum distance estimation based on impulse responses for the Volcker-Green span period. Apart from providing estimates for structural parameters, our procedure lends itself for specification tests that can be used to assess the relative fit of various restricted models. Financial frictions turn out to be of lesser importance for the descriptive success of our model.
Subject: monetary policy; output composition; financial frictions; minimum distance estimation
Type of Access: openAccess
Earlier different version: http://hdl.handle.net/1814/5015
Version: The article is a revised version of a chapter 2 of the author's EUI PhD thesis, 2005
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