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Working Paper
The financial accelerator mechanism: does frequency matter?
We use mixed-frequency (quarterly-monthly) data to estimate a dynamic stochastic general equilibrium model embedded with the financial accelerator mechanism à la Bernanke et al. (1999). We find that the financial accelerator can work very differently at monthly frequency compared to quarterly frequency; that is, we document its inversion. That is because aggregating monthly data into quarterly data leads to large biases in the estimated quarterly parameters and, as a consequence, to a deep change in the transmission of shocks.