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Do credit market shocks drive output fluctuations? Evidence from corporate spreads and defaults

Meeks, Roland

Description

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...[Show more]

CollectionsANU Research Publications
Date published: 2012
Type: Journal article
URI: http://hdl.handle.net/1885/71855
Source: Journal of Economic Dynamics and Control
DOI: 10.1016/j.jedc.2011.11.010

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