How important are trend shocks? The role of the debt elasticity of interest rate

• 成果类型: Article
• 署名作者: Germaschewski, Yin; Horvath, Jaroslav; Rubini, Loris
• 署名单位: University System Of New Hampshire; University of New Hampshire
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2024.103990
• 发表日期: 2024
• 关键词: Debt elasticity of interest rate; Trend productivity shocks; financial frictions; Macroeconomic volatility; Small open economy

摘要

We study how financial frictions affect the importance of trend productivity shocks for macroeconomic fluctuations. Using long-run data from 17 small open economies (SOEs), we compare two variants of a workhorse SOE real business cycle model featuring a debt-elastic interest rate (DEIR), a measure of financial frictions. The first variant estimates the DEIR parameter, while the second fixes it to 0.001, effectively abstracting from financial frictions. On average, ignoring financial frictions doubles the contribution of trend shocks to output fluctuations. This suggests that a proper assessment of the quantitative effects of trend shocks requires reasonable DEIR values.