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Quantifying the Effect of Financial Conditions on US Activity

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  • Stéphanie Guichard
  • David Turner

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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File URL: http://dx.doi.org/10.1787/236860073636
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Bibliographic Info

Paper provided by OECD Publishing 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: financial conditions index; interest rate spreads; credit crunch; credit channel; macro-financial linkages; indice des conditions financières; écarts de taux d’intérêt; contraction du crédit; canal du crédit; relations macro-financières;

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Cited by:
  1. Abdul Majid, Muhamed Zulkhibri, 2010. "Measuring Monetary Conditions in A Small Open Economy: The Case of Malaysia," MPRA Paper 29154, University Library of Munich, Germany.
  2. Magdalena Erdem & Kostas Tsatsaronis, 2013. "Financial conditions and economic activity: a statistical approach," BIS Quarterly Review, Bank for International Settlements, March.
  3. Kimberly Beaton & René Lalonde & Corinne Luu, 2009. "A Financial Conditions Index for the United States," Discussion Papers 09-11, Bank of Canada.
  4. Esteban Gómez & Andrés Murcia & Nancy Zamudio, 2011. "Financial Conditions Index: Early and Leading Indicator for Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.

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