Financial Sector Shocks, External Finance Premium and Business Cycle
This paper extends Nolan and Thoenissen (2009), hence NT, model with an explicit financial intermediary that transfer funds from households to entrepreneurs subject to a well defined loan production function. The loan productivity shock is treated as the supply side financial disturbance. Together with NT.s net worth shock that resembles the credit demand perturbation, both of the two-sided shocks are robustly extracted by combining the model with US quarterly data. The two shocks are found to be tightly linked with the post-war recessions. Each recession happens when both of the two shocks become contractionary. A few potential economic downturns seem to have been avoided because of the expansion of credit which offset the simultaneous contraction of entrepreneurial net wealth. This new introduced shock has significant explanatory power for the variance of EFP and the model simulated EFP holds high correlation with various spreads as proxies for empirical EFP.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC
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.:
- Joseph Atta-Mensah & Ali Dib, 2003.
"Bank Lending, Credit Shocks, and the Transmission of Canadian Monetary Policy,"
03-9, Bank of Canada.
- Atta-Mensah, Joseph & Dib, Ali, 2008. "Bank lending, credit shocks, and the transmission of Canadian monetary policy," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 159-176.
When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2011/7. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruce Webb)
If references are entirely missing, you can add them using this form.