Cross-Sectional Financial Conditions, Business Cycles and The Lending Channel

Thiago Revil T. Ferreira
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Thiago Revil T. Ferreira: https://www.federalreserve.gov/econres/thiago-r-t-ferreira.htm

No 1335, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: I document business cycle properties of the full cross-sectional distributions of U.S. stock returns and credit spreads from financial and nonfinancial firms. The skewness of returns of financial firms (SRF) best predicts economic activity, while being a barometer for lending conditions. SRF also affects firm-level investment beyond firms' balance sheets, and adverse SRF shocks lead to macroeconomic downturns with tighter lending conditions in vector autoregressions (VARs). These results are consistent with a lending channel in which cross-sectional financial firms' balance sheets play a prominent role in business cycles. I rationalize this argument with a model that matches the VAR evidence.

Keywords: Cross-Sectional; Skewness; Business Cycles; Lending Channel (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 (search for similar items in EconPapers)
Date: 2022-02-04
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1335

DOI: 10.17016/IFDP.2022.1335

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