Feedbacks: Financial Markets and Economic Activity

Markus Brunnermeier, Darius Palia, Karthik Sastry and Christopher Sims (sims@princeton.edu)
Additional contact information
Darius Palia: Rutgers University
Karthik Sastry: Massachusetts Institute of Technology

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: Our structural VAR with 10 monthly variables and identified by heteroscedasticity shows that credit and output growth are mostly positively associated. Negative reduced form responses to credit growth are attributed in our model to the monetary policy response to credit expansion shocks. Financial stress, measured by rises in interest rate spreads, is followed by declines in output and shrinkage of credit. We find two distinct sources of financial stress shocks. Neither credit aggregates nor rate spreads provide much advance warning of the 2008-9 crisis, but the spreads improve the model forecasts during the crisis.

JEL-codes: G01 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: Feedbacks: Financial Markets and Economic Activity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:257

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