TY - JOUR
T1 - Do credit market shocks drive output fluctuations? Evidence from corporate spreads and defaults
AU - Meeks, Roland
PY - 2012
Y1 - 2012
N2 - Are exogenous shocks to lending spreads in corporate credit markets a substantial source of macroeconomic fluctuations? An alternative explanation of the data is that borrowing costs respond endogenously to expectations of future default, driven by macroeconomic shocks. We investigate by imposing restrictions on a structural vector autoregression that isolate the influence of expected default on spreads. We find that adverse credit shocks have contributed to declining output in every post-1982 recession, and account for three-fifths of the decline in output during the 2007-2009 contraction. However, on average credit shocks account for only a fifth of business cycle fluctuations.
AB - Are exogenous shocks to lending spreads in corporate credit markets a substantial source of macroeconomic fluctuations? An alternative explanation of the data is that borrowing costs respond endogenously to expectations of future default, driven by macroeconomic shocks. We investigate by imposing restrictions on a structural vector autoregression that isolate the influence of expected default on spreads. We find that adverse credit shocks have contributed to declining output in every post-1982 recession, and account for three-fifths of the decline in output during the 2007-2009 contraction. However, on average credit shocks account for only a fifth of business cycle fluctuations.
U2 - 10.1016/j.jedc.2011.11.010
DO - 10.1016/j.jedc.2011.11.010
M3 - Article
VL - 36
SP - 568
EP - 584
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
IS - 4
ER -