Model with financial accelerator shut off?


#1

I recently download the replication code for BGG model. In the paper, Bernanke et al. also provided the baseline model with no financial accelerator. How can I get the replication of the model with no financial accelerator? I would like to compare the two different models.


#2

It seems you need to strip out the financial accelerator features yourself. It does not seem to be sufficient to just change the parameters, because the steady states are hardcoded. That complicates the issue considerably.


#3

thanks, i will try that


#4

Dear all,

I am facing the same issue. Here are my thoughts, any comments are very welcome:

The FA enters the model via: E_t(r^k_{t+1})-r_{t+1}=-nu[n_{t+1}-(q_t+k_{t+1})]

where nu is the elasticity of the premium with respect to N/K. In shutting the FA off I set nu to zero so that the premium deviations from SS are not affected by the leverage. However I subsequently get amplified IRF. So I assume something must be wrong.

There is also an equation governing the accumulation of wealth but that equation does not seem to belong to the FA directly.

I agree that the SS would change if the FA is turned off since the leverage essentially becomes irrelevant so firms would love to purchase more capital by borrowing more in steady state. In papers I studied so far however the steady state is kept at a constant level and they still get a smaller response.


#5

Hey JMatschke,

I tryed to turn off the Financial Accelerator the same way. In my case it seems to work well. Maybe my dynare file can help you. FinancialAccelerator.mod (4.0 KB)


#6

Your model delivers theoretical moments containing NaNs. How can this be corrected?


#7

Indeed the provided mod-file has a unit root.


#8

@Max1 It is easy to remove the unit root: Try nu=0.001 instead of nu=0 to switch off the financial accelerator. Furthermore, the autocorrelation of technology should be 0.999 instead of 1.


#9

Thank you for the advice.
The unit root (eigenvalue =1) stems from the technology autocorrelation-parameter which is assumed to be 1 in the paper of BGG.
But what is the source of the NaNĀ“s in the theoretical moments?
Maybe I can ask you another (stupid) question at this point; why is dynares preprocessor not interrupting the execution of the file? Together with the unit root there are 4 unstable EV and 3 forward looking variables. Can dynare distinguish between endogenous and exogenous eigenvalues?
Thanks in advance.