The Empirical Performance of Financial Frictions Since 2008

Using nonlinear Bayesian methods that fully account for the binding zero lower bound (ZLB), we estimate a large-scale macro-finance DSGE model on US data. Counterfactual analysis suggests that by easing financing conditions, quantitative easing facilitated a net increase in aggregate investment. The resulting expansion of firms' production capacities lowered their marginal costs. These disinflationary supply side effects dominated over the inflationary effects induced by the stimulus to aggregate demand. At the ZLB, the concomitant rise in real interest rates, in turn, induced a net fall in aggregate consumption.

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The Empirical Performance of Financial Frictions Since 2008

Cited by 2 publications

References 33 publications

Efficient solution and computation of models with occasionally binding constraints

Efficient solution and computation of models with occasionally binding constraints

A Structural Investigation of Quantitative Easing

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