Second, the dynamics of overall efp are dominated by the

First, baseline FAGK model yields greater volatility of efp and of real variables, compared to FA or GK when driven by shocks of the same size. Second, the dynamics of overall efp are dominated by the fluctuations of the lender premium which is propagated by the bank constraint in FAGK model. In the second part of the chapter, I evaluate how changes in the severity of frictions or in the conduct of monetary policy may lead to greater propagating power of shocks in the model economy.

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