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FINANCIAL INTERMEDIATION AND AGGREGATE FLUCTUATIONS: A QUANTITATIVE ANALYSIS

Published online by Cambridge University Press:  16 January 2001

Russell Cooper  and
João Ejarque
Russell Cooper
Affiliation:
Boston University
João Ejarque
Affiliation:
Università di Modena and University of Copenhagen
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Abstract

We investigate the quantitative behavior of business-cycle models in which the intermediation process acts either as a source of fluctuations or as a propagator of real shocks. In neither case do we find convincing evidence that the intermediation process is an important element of aggregate fluctuations. For an economy driven by intermediation shocks, consumption is not smoother than output, investment is negatively correlated with output, variations in the capital stock are quite large, and interest rates are procyclical. The model economy thus fails to match unconditional moments for the U.S. economy. We also structurally estimate parameters of a model economy in which intermediation and productivity shocks are present, allowing for the intermediation process to propagate the real shock. The unconditional correlations are closer to those observed only when the intermediation shock is relatively unimportant.

Keywords

Financial IntermediationCredit ShocksAggregate Fluctuations
Type
Articles
Information
Macroeconomic Dynamics , Volume 4 , Issue 4 , December 2000 , pp. 423 - 447
Copyright
© 2000 Cambridge University Press

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