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News Shocks under Financial Frictions

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  • Christoph Görtz
  • John D. Tsoukalas
  • Francesco Zanetti

Abstract

We examine the dynamic effects of TFP news shocks in the context of frictions in financial markets. We document two new facts. First, a shock to future TFP generates a significant decline in credit spread indicators along with a robust improvement in credit supply indicators. Second, we establish a tight link between TFP news shocks and shocks that explain the majority of unforecastable movements in credit spread indicators. A DSGE model enriched with a financial sector of the Gertler-Kiyotaki-Karadi type generates very similar quantitative dynamics.

Suggested Citation

  • Christoph Görtz & John D. Tsoukalas & Francesco Zanetti, 2022. "News Shocks under Financial Frictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(4), pages 210-243, October.
    • Handle: RePEc:aea:aejmac:v:14:y:2022:i:4:p:210-43
    DOI: 10.1257/mac.20170066
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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