Business cycles, financial conditions, and nonlinearities

Ivan Mendieta‐Muñoz and Doğuhan Sündal
Authors registered in the RePEc Author Service: Ivan Mendieta-Muñoz

Metroeconomica, 2022, vol. 73, issue 2, 343-383

Abstract: Using a Bayesian threshold vector autoregression model for the US economy, this paper tests whether nonlinear dynamics can arise from the endogenous interactions between traditional business cycles, depicted by investment decisions, profitability levels and aggregate demand levels, and financial conditions, depicted by credit market conditions, thus considering that the latter are important sources of instability and possible nonlinear propagators of other shocks. The results support the characterization of nonlinear dynamics in the transmission of shocks since there is evidence of asymmetric responses of the variables across two different regimes of financial stress, responding more strongly during loose financial conditions.

Date: 2022
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https://doi.org/10.1111/meca.12363

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Working Paper: Business cycles, financial conditions and nonlinearities (2020)
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