Financial Accelerator Effect and Macroeconomic Fluctuations

This paper is to investigate the financial accelerator (FA) effects in a small open economy. By extending the FA framework of Bernanke et al. [2], we build up a stochastically dynamic new Keynesian model, with the emphasis on the international interaction in goods and financial markets. Empirically, we undertake the calibration experiment to assess the FA effects due to credit frictions in Taiwan´s economic fluctuations, especially the changes in investment.