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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Do banking shocks matter for the U.S. economy?
Naohisa Hirakata
Nao Sudo
Kozo Ueda
Abstract

The quantitative significance of shocks to the financial intermediary (FI) has not received much attention up to now. We estimate a DSGE model with what we describe as chained credit contracts, using Bayesian technique. In the model, credit-constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. We find that the shocks to the FIs' net worth play an important role in the investment dynamics, accounting for 17 percent of its variations. In particular, in the Great Recession, they are the key determinants of the investment declines, accounting for 36 percent of the variations.


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Naohisa Hirakata & Nao Sudo & Kozo Ueda, Do banking shocks matter for the U.S. economy?, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 86, 2011.
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Note: Published as: Hirakata, Naohisa, Nao Sudo and Kozo Ueda (2011), "Do Banking Shocks Matter for the U.S. Economy?" Journal of International Economic Dynamics and Control 35 (12): 2042-2063.
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