Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 184: Exploring Interactions between Real Activity and the Financial Stance

Tor Jacobson (), Jesper Lindé () and Kasper Roszbach ()
Additional contact information
Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Jesper Lindé: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Kasper Roszbach: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: In this paper we empirically study interactions between real activity and the financial stance. Using aggregate data we examine a number of candidate measures of the financial stance of the economy. We find strong evidence for substantial spillover effects on aggregate activity from our preferred measure. Given this result, we use a large micro data-set for corporate firms to develop a macro-micro model of the interaction between the financial and real economy. This approach implies that the impulse responses of a given aggregate shock will depend on the portfolio structure of firms at any given point in time.

Keywords: Default-risk models; Business Cycles; Financial Stability; Price stability; Financial and real economy interaction

JEL-codes: C41; G21; G33; G38

51 pages, April 1, 2005

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