Working Paper: CEPR ID: DP9470
Authors: Jean Boivin; Marc 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. The identified credit shocks, interpreted as unexpected deteriorations of credit market conditions, immediately increase credit spreads, decrease rates on Treasury securities, and cause large and persistent downturns in the activity of many economic sectors. Such shocks are found to have important effects on real activity measures, aggregate prices, leading indicators, and credit spreads. Our identification procedure does not require any timing restrictions between the financial and macroeconomic factors, and yields interpretable estimated factors.
Keywords: credit shock; structural factor analysis
JEL Codes: C32; E32; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected increase in credit spreads (F65) | significant and immediate increase in credit spreads (F65) |
| unexpected increase in credit spreads (F65) | notable decrease in yields of treasury securities (H63) |
| credit shocks (G21) | persistent downturns in various sectors (E32) |
| credit shocks (G21) | effects on measures of real activity, aggregate prices, and credit spreads (E44) |
| credit shocks (G21) | explain over 50% of the forecast error variance in several key indicators (F37) |
| credit shocks (G21) | significant impacts on economic fluctuations (F44) |
| identification procedure (F55) | interpretable factors correlated with various economic indicators (E20) |