Cross-sectional financial conditions, business cycles and the lending channel

Thiago R.T. Ferreira

Journal of Monetary Economics, 2024, vol. 147, issue C

Abstract: I document business cycle properties of the cross-sectional distributions of U.S. stock returns and credit spreads. The skewness of returns of financial firms (SRF) best predicts economic activity, while being a barometer for the lending channel—credit supply shifts beyond what is explained by borrowers’ conditions. SRF also predict firm-level investment beyond firms’ balance sheets. Using a structural model, I estimate that while SRF is highly cyclical, shocks to the cross-sectional skewness of financial firms’ asset quality help explain GDP growth in historical episodes. These results point to the cross-section of financial firms playing a prominent role in business cycles.

Keywords: Cross-sectional; Skewness; Business cycles; Lending channel (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 G10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000503

DOI: 10.1016/j.jmoneco.2024.103597

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