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Dynamic effects of credit shocks in a data-rich environment

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  • Jean Boivin
  • Marc P. Giannoni
  • Dalibor Stevanovic

Abstract

We examine the dynamic effects of credit shocks using a large data set of U.S. economic and financial indicators in a structural factor model. The identified credit shocks, interpreted as unexpected deteriorations of credit market conditions, immediately increase credit spreads, decrease rates on Treasury securities, and cause large and persistent downturns in the activity of many economic sectors. Such shocks are found to have important effects on real activity measures, aggregate prices, leading indicators, and credit spreads. Our identification procedure does not require any timing restrictions between the financial and macroeconomic factors and yields interpretable estimated factors.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 615.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:615

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Keywords: Credit ; Rate of return ; Treasury bonds ; Economic indicators;

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  1. Lawrence J. Christiano & Roberto Motto, 2004. "The Great Depression and the Friedman-Schwartz Hypothesis," Computing in Economics and Finance 2004, Society for Computational Economics 169, Society for Computational Economics.
  2. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2008. "A Quasi Maximum Likelihood Approach for Large Approximate Dynamic Factor Models," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_034, ULB -- Universite Libre de Bruxelles.
  3. Jean Boivin & Marc Giannoni, 2006. "DSGE Models in a Data-Rich Environment," NBER Working Papers 12772, National Bureau of Economic Research, Inc.
  4. Mark Gertler & Cara S. Lown, 2000. "The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications," NBER Working Papers 7549, National Bureau of Economic Research, Inc.
  5. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 471-493, May.
  6. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  7. Lucrezia Reichlin & Domenico Giannone & Luca Sala, . "Monetary policy in real time," ULB Institutional Repository 2013/10177, ULB -- Universite Libre de Bruxelles.
    • Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 161-224 National Bureau of Economic Research, Inc.
  8. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  9. Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2008. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_036, ULB -- Universite Libre de Bruxelles.
  10. Lawrence Christiano & Roberto Motto & Massimo Rostagno, 2013. "Risk Shocks," NBER Working Papers 18682, National Bureau of Economic Research, Inc.
  11. Borus Jungbacker & Siem Jan Koopman, 2008. "Likelihood-based Analysis for Dynamic Factor Models," Tinbergen Institute Discussion Papers 08-007/4, Tinbergen Institute, revised 20 Mar 2014.
  12. Borus Jungbacker & Siem Jan Koopman, 2008. "Likelihood-based Analysis for Dynamic Factor Models," Tinbergen Institute Discussion Papers 08-007/4, Tinbergen Institute, revised 20 Mar 2014.
  13. Sargent, Thomas J, 1989. "Two Models of Measurements and the Investment Accelerator," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(2), pages 251-87, April.
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Cited by:
  1. Fonseca, Marcelo Gonçalves da Silva & Pereira, Pedro L. Valls, 2014. "Credit shocks and monetary policy in Brazil: A structural FAVAR approach," Textos para discussão 358, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  2. Nathan Bedock & Dalibor Stevanovic, 2012. "An Empirical Study of Credit Shock Transmission in a Small Open Economy," CIRANO Working Papers, CIRANO 2012s-16, CIRANO.
  3. Mésonnier, J-S. & Stevanovic, D., 2012. "Bank leverage shocks and the macroeconomy: a new look in a data-rich environment," Working papers, Banque de France 394, Banque de France.
  4. Covas, Francisco B. & Rump, Ben & Zakrajšek, Egon, 2014. "Stress-testing US bank holding companies: A dynamic panel quantile regression approach," International Journal of Forecasting, Elsevier, Elsevier, vol. 30(3), pages 691-713.
  5. Pinter, Gabor & Theodoridis, Konstantinos & Yates, Tony, 2013. "Risk news shocks and the business cycle," Bank of England working papers 483, Bank of England.

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