Do credit market shocks drive output fluctuations? Evidence from corporate spreads and defaults

Roland Meeks

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 4, 568-584

Abstract: Are exogenous shocks to lending spreads in corporate credit markets a substantial source of macroeconomic fluctuations? An alternative explanation of the data is that borrowing costs respond endogenously to expectations of future default, driven by macroeconomic shocks. We investigate by imposing restrictions on a structural vector autoregression that isolate the influence of expected default on spreads. We find that adverse credit shocks have contributed to declining output in every post-1982 recession, and account for three-fifths of the decline in output during the 2007–2009 contraction. However, on average credit shocks account for only a fifth of business cycle fluctuations.

Keywords: Corporate bond spreads; Default rates; Sign restrictions; Bayesian vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E32 E43 E44 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (99)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188911002351
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:4:p:568-584

DOI: 10.1016/j.jedc.2011.11.010

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().