Credit Shocks and Cycles: a Bayesian Calibration Approach

Roland Meeks

No 2006-W11, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: This paper asks how well a general equilibrium agency cost model describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading, countercyclical correlation of spreads with output when shocks arising from the credit market contribute to output fluctuations. The contribution of technology shocks is held at conventional RBC levels. Sensitivity analysis shows that moderate prior calibration uncertainty leads to significant dispersion in predictedcorrelations. Most predictive uncertainty arises from a single parameter.

Keywords: agency costs; credit cycles; calibration; shocks. (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 E37 E44 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-08-25
New Economics Papers: this item is included in nep-dge, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0611

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