jep%2E24%2E4%2E21

Jep.24.4.21

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Unformatted text preview: ve to be flatter must be balanced against the observation that a steeper XS curve for a given level of capital in the intermediary sector will imply a steeper IS curve. This is why the degree of amplification from credit frictions that is found in quantitative dynamic stochastic general equilibrium models is sometimes quite modest. 9 The empirical dynamic stochastic general equilibrium models of Christiano, Motto, and Rostagno (2010) and Gilchrist, Ortiz, and Zakrajsek (2009) each attribute a substantial fraction of the short-run variability of real GDP to disturbances that vary the severity of financial frictions. 34 Journal of Economic Perspectives Figure 4 Effects of a Disruption of Credit Supply A: Effects on the Equilibrium Credit Spread ω and Volume of Lending L for a Given Level of Aggregate Income Y Interest rate spread (between savers and borrowers) ω XS ω2 ω1 XD L1 L2 Volume of lending L B: Effects on the Equilibrium Policy Rate and Aggregate Income, Taking into Account the Monetary Policy Reaction Interest rate is MP i1 i2 IS Y1 Y2 Aggregate income Y Not...
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This note was uploaded on 11/23/2013 for the course ECON 11837649 taught by Professor Batchelder during the Spring '10 term at Pepperdine.

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