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Title:How important is the credit channel? An empirical study of the US banking crisis PDF Logo
Authors:Liu, Chunping
Minford, Patrick
Issue Date:2012
Series/Report no.:Cardiff Economics Working Papers E2012/22
Abstract:We examine whether by adding a credit channel to the standard New Keynesian model we can account better for the behaviour of US macroeconomic data up to and including the banking crisis. We use the method of indirect inference which evaluates statistically how far a model is simulated behaviour mimics the behaviour of the data. We find that the model with credit dominates the standard model by a substantial margin. The credit channel is the main contributor to the variation in the output gap during the crisis.
Subjects:financial frictions
credit channel
bank crisis
indirect inference
JEL:C12
C52
E12
G01
G1
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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