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2005•RePEc: Research Papers in EconomicsRequires access

Capital Market Frictions, Business Cycle and Monetary Transmission

Olivier Pierrard

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Abstract

Empirical evidence shows that some firms may be capital constraint because of capital market imperfections. We therefore extend the business cycle models with frictions 'a la Pissarides on the labour market by also introducing symmetric frictions on the capital market. We show that the capital market frictions (and their interactions with the labour market frictions) improve the statistical properties of the model and generate a financial accelerator.

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Empirical evidence shows that some firms may be capital constraint because of capital market imperfections. We therefore extend the business cycle models with frictions 'a la Pissarides on the labour market by also introducing symmetric frictions on the capital market. We show that the capital market frictions (and their interactions with the labour market frictions) improve the statistical properties of the model and generate a financial accelerator.

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Available abstract

Empirical evidence shows that some firms may be capital constraint because of capital market imperfections. We therefore extend the business cycle models with frictions 'a la Pissarides on the labour market by also introducing symmetric frictions on the capital market. We show that the capital market frictions (and their interactions with the labour market frictions) improve the statistical properties of the model and generate a financial accelerator.

Key concepts: Business cycle, Capital market imperfections, Economics, Constraint (computer-aided design), Capital (architecture), Monetary economics, Capital market, Empirical evidence

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