The Credit Spread and U.S. Business Cycles

Junsang Lee and Keisuke Otsu

Studies in Economics from School of Economics, University of Kent

Abstract: In this paper, we construct a dynamic stochastic general equilibrium model in order to investigate the impact of credit spread shocks on the U.S. business cycle. We find that the shocks to the investment specific technology and the preference weights on consumption and leisure are the main sources of output fluctuation. Shocks to the credit spread and productivity are the main source of the fluctuation in the investment to output ratio. Credit spread shocks also had a significant impact on the output during the recent financial crisis.

Keywords: Credit Spread; Business Cycles; Investment Specific Technology (search for similar items in EconPapers)
JEL-codes: E13 E32 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba, nep-dge and nep-mac
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