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COMMENTS ON “EXTERNAL CONSTRAINTS ON MONETARY POLICY AND THE FINANCIAL ACCELERATOR”
BibTeX
@MISC{Gertler_commentson,
author = {Mark Gertler and Simon Gilchrist and Fabio Natalucci and Philip Lowe},
title = {COMMENTS ON “EXTERNAL CONSTRAINTS ON MONETARY POLICY AND THE FINANCIAL ACCELERATOR”},
year = {}
}
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Abstract
More than ever before financial factors are shaping the business cycle. This is true not only in those countries struggling to come to grips with recently liberalised financial systems, but also in those that have had a couple of decades to adapt. Around the globe, we have seen balance sheets expand more quickly than GDP and levels of debt rise more quickly than income. And as a result, today, economic fluctuations are more likely to have their roots in financial factors than in any other factor. All this is forcing us to rethink how the world works. First, private-sector spending is becoming more sensitive to changes in asset prices and, possibly, interest rates. Second, the macroeconomy seems more susceptible to asset price misalignments and associated misperceptions of risk. And third, we have come to realise that changes in the structure of balance sheets can act as a powerful accelerator to the business cycle. It is this third dimension of this changing world that the paper by Gertler et al addresses. Over the past decade the first two authors have been instrumental in giving us the tools to model and analyse the effects of debt and asset prices on the evolution of the business cycle. Their basic line of reasoning is well known but let me repeat it
Keyphrases
business cycle financial accelerator comment external constraint monetary policy balance sheet financial factor asset price third dimension private-sector spending asset price misalignment past decade interest rate al address powerful accelerator debt rise financial system basic line associated misperceptions economic fluctuation
