Consumption channel through financial wealth effects and investment channel: Quality shocks to capital as stock market shocks
Chávez Barragán, Ricardo
MetadataShow full item record
The objective of this work is to develop a structural framework to analyze the impact of adverse shocks in stock market prices that have strictly important effects in the financial wealth of households as well as firms. We made use of a standard New Keynesian DSGE with sticky prices and add two particular characteristics; a consumption channel through short run wealth effect in Blanchard-Yari strategy and an investment channel through financial intermediaries as the work Gertler and Karadi. The results that we obtained were very much alike those in the literature with the particularity of the increased volatility when the consumption channel is active. The dynamics of the investment channel dominates in the short run but in the medium and long run of the business cycle the consumption channel dominates the picture. What is at odd with the literature is the late return to the steady state of the model with consumption channel that could be explained by the interpretation of financial wealth in households. It is necessary for future research to make an analysis of a policy rule that takes into account the transmission of the short run wealth effect.