News Shocks under Financial Frictions

Francesco Zanetti, Christoph Görtz and John Tsoukalas
Authors registered in the RePEc Author Service: Christoph G. Görtz

No 813, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a signicant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, it is striking that VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector of the Gertler-Kiyotaki-Karadi type generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplication of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional 'news view' of aggregate fluctuations.

Keywords: News shocks; Business cycles; DSGE; VAR; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2016-11-23
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:46478eaa-e6d3-4544-bb12-f576adcc0871 (text/html)

Related works:
Journal Article: News Shocks under Financial Frictions (2022)
Working Paper: News Shocks under Financial Frictions (2021)
Working Paper: News Shocks under Financial Frictions (2020)
Working Paper: News Shocks under Financial Frictions (2020)
Working Paper: News shocks under financial frictions (2020)
Working Paper: News Shocks under Financial Frictions (2017)
Working Paper: News Shocks under Financial Frictions (2016)
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:oxf:wpaper:813

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).