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Dynamic Effects of Credit Shocks in a Data-Rich Environment

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  • Jean Boivin
  • Marc P. Giannoni
  • Dalibor Stevanovic

Abstract

We examine the dynamic effects of credit shocks using a large data set of U.S. economic and financial indicators in a structural factor model. An identified credit shock reflecting an unexpected deterioration in credit market conditions results in an immediate increase in credit spreads, a decrease in yields of Treasury securities, and causes large and persistent downturns in the activity of many economic sectors. Such shocks are found to have important effects on real activity measures, labor market indicators, aggregate prices, and leading indicators. Our identification procedure which imposes restrictions on the impact response of a small number of economic indicators yields interpretable estimated factors.

Suggested Citation

  • Jean Boivin & Marc P. Giannoni & Dalibor Stevanovic, 2016. "Dynamic Effects of Credit Shocks in a Data-Rich Environment," CIRANO Working Papers 2016s-55, CIRANO.
  • Handle: RePEc:cir:cirwor:2016s-55
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    More about this item

    Keywords

    Credit shocks; FAVAR; structural factor analysis;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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

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