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The Credit Spread and U.S. Business Cycles

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  • Junsang Lee
  • Keisuke Otsu

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Abstract

In this paper, we construct a dynamic stochastic general equilibrium model in order to investigate the impact of credit spread shocks on the U.S. business cycle. We find that the shocks to the investment specific technology and the preference weights on consumption and leisure are the main sources of output fluctuation. Shocks to the credit spread and productivity are the main source of the fluctuation in the investment to output ratio. Credit spread shocks also had a significant impact on the output during the recent financial crisis.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1123.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 1123.

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Date of creation: Nov 2011
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Handle: RePEc:ukc:ukcedp:1123

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Credit Spread; Business Cycles; Investment Specific Technology;

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  1. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
  2. Keisuke Otsu, 2009. "International Business Cycle Accounting," IMES Discussion Paper Series 09-E-29, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Chen, Kaiji & Imrohoroglu, Ayse & Imrohoroglu, Selahattin, 2009. "A quantitative assessment of the decline in the U.S. current account," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1135-1147, November.
  4. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
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