Title: Macroeconomic effects of collateral requirements and financial shocks
Authors: Aicha Kharazi - Free University of Bozen-Bolzano (Italy) [presenting]
Abstract: A standard model of the business cycle is introduced to study the dynamic effects of collateral requirements. The model is estimated using Bayesian methods and can be employed to ask whether an exogenous change in a firm's ability to borrow can amplify macroeconomic fluctuations via the bank lending channel and to measure the role of collateral. Regarding the results from the estimated model, first, we find that the effect of an increase in collateral requirements is highly significant, while the effect of investment-specific technical change is remarkably modest compared with the other financial shocks. When financial data, such as external financing, business net worth, and capital price, are incorporated into the model, productivity shocks diminish in importance. Second, we find that the contribution of financial shocks is much marked during the financial crisis and substantially shapes macroeconomic fluctuations.