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Quantifying the Effect of Financial Conditions on US Activity

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Author Info
Stéphanie Guichard
David Turner

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Abstract

This paper constructs a broad measure of financial conditions for the United States which suggests that since the onset of the credit crisis there has been a marked tightening in financial conditions, despite a substantial easing of policy rates and a depreciation of the dollar. This measure of overall financial conditions includes interest rate spreads for riskier borrowers and a survey measure of the tightness of bank lending standards, which have been the main drivers behind the tightening in financial conditions. Indeed, recent data suggest that the trend deterioration in overall financial conditions has continued into the second half of 2008. The effect of the tightening in overall financial conditions already experienced may subtract 1¾ per cent from GDP over the next four to six quarters. Not only have financial conditions continued to worsen, but much of the impact on the real economy has yet to be felt.

Une mesure de l’impact des conditions financières sur l’activité aux États-Unis
Ce papier propose une mesure des conditions financières au sens large pour les États-Unis suggérant que depuis le début de la crise du crédit, les conditions financières se sont fortement resserrées malgré la baisse substantielle des taux directeurs et la dépréciation du dollar. Cette mesure des conditions financières au sens large inclut les primes de risques supportées par les emprunteurs les plus risqué et les résultats d’une enquête sur le caractère plus ou moins restrictif de l’accès au crédit bancaire. Ces derniers ont été les principaux facteurs conduisant á un durcissement des conditions financières. Les informations les plus récentes suggèrent que les conditions financières au sens large ont continué á se durcir au cours de la seconde moitié de 2008. L’effet du durcissement qui a eu lieu jusqu'à présent pourrait retirer jusqu’á 1¾ pour cent de PIB au cours des quatre à six prochains trimestres. Ainsi, non seulement les conditions financières continuent á se durcir mais une large part de l’impact sur l’économie réelle reste á venir.

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Publisher Info
Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 635.

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Date of creation: 08 Sep 2008
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Handle: RePEc:oec:ecoaaa:635-en

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Related research
Keywords: credit channel; credit crunch; financial conditions index; interest rate spreads; macro-financial linkages; canal du crédit; contraction du crédit; écarts de taux d’intérêt; indice des conditions financières; relations macro-financières;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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