Credit Shocks and Cycles: a Bayesian Calibration Approach
AbstractThis paper asks how well a general equilibrium agency cost model describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading, countercyclical correlation of spreads with output when shocks arising from the credit market contribute to output fluctuations. The contribution of technology shocks is held at conventional RBC levels. Sensitivity analysis shows that moderate prior calibration uncertainty leads to significant dispersion in predictedcorrelations. Most predictive uncertainty arises from a single parameter.
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Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2006-W11.
Length: 29 pages
Date of creation: 25 Aug 2006
Date of revision:
Contact details of provider:
Web page: http://www.nuff.ox.ac.uk/economics/
agency costs; credit cycles; calibration; shocks.;
Other versions of this item:
- Roland Meeks, 2006. "Credit shocks and cycles: a Bayesian calibration approach," Economics Series Working Papers, University of Oxford, Department of Economics 2006-W11, University of Oxford, Department of Economics.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-14 (All new papers)
- NEP-DGE-2006-10-14 (Dynamic General Equilibrium)
- NEP-FMK-2006-10-14 (Financial Markets)
- NEP-MAC-2006-10-14 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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