Business Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocks

Title:
Business Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocks
Authors:
Nason, James M.; Tallman, Ellis ( 0000-0001-8387-2768 )
Abstract:
This paper explores the hypothesis that the sources of economic and financial crises differ from those of noncrisis business cycle fluctuations. We employ Markov-switching Bayesian vector autoregressions (MS-BVARs) to gather evidence about the hypothesis on a long annual U.S. sample running from 1890 to 2010. The sample covers several episodes useful for understanding U.S. economic and financial history, which generate variation in the data that aids in identifying credit supply and demand shocks. We identify these shocks within MS-BVARs by tying credit supply and demand movements to inside money and its intertemporal price. The model space is limited to stochastic volatility (SV) in the errors of the MS-BVARs. Of the 15 MS-BVARs estimated, the data favor a MS-BVAR in which economic and financial crises and noncrisis business cycle regimes recur throughout the long annual sample. The best-fitting MS-BVAR also isolates SV regimes in which shocks to inside money dominate aggregate fluctuations.
Citation:
Nason, James M., and Ellis W. Tallman. 2015. "Business Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocks." Macroeconomic Dynamics 19(4): 836-882.
Publisher:
Cambridge Univeristy Press
DATE ISSUED:
2015-06
Department:
Economics
Type:
Article
PUBLISHED VERSION:
10.1017/S1365100513000631
PERMANENT LINK:
http://hdl.handle.net/11282/594372

Full metadata record

DC FieldValue Language
dc.contributor.authorNason, James M.en
dc.contributor.authorTallman, Ellisen
dc.date.accessioned2016-01-19T19:32:25Zen
dc.date.available2016-01-19T19:32:25Zen
dc.date.issued2015-06en
dc.identifier.citationNason, James M., and Ellis W. Tallman. 2015. "Business Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocks." Macroeconomic Dynamics 19(4): 836-882.en
dc.identifier.issn1365-1005en
dc.identifier.urihttp://hdl.handle.net/11282/594372en
dc.description.abstractThis paper explores the hypothesis that the sources of economic and financial crises differ from those of noncrisis business cycle fluctuations. We employ Markov-switching Bayesian vector autoregressions (MS-BVARs) to gather evidence about the hypothesis on a long annual U.S. sample running from 1890 to 2010. The sample covers several episodes useful for understanding U.S. economic and financial history, which generate variation in the data that aids in identifying credit supply and demand shocks. We identify these shocks within MS-BVARs by tying credit supply and demand movements to inside money and its intertemporal price. The model space is limited to stochastic volatility (SV) in the errors of the MS-BVARs. Of the 15 MS-BVARs estimated, the data favor a MS-BVAR in which economic and financial crises and noncrisis business cycle regimes recur throughout the long annual sample. The best-fitting MS-BVAR also isolates SV regimes in which shocks to inside money dominate aggregate fluctuations.en
dc.language.isoen_USen
dc.publisherCambridge Univeristy Pressen
dc.identifier.doi10.1017/S1365100513000631en
dc.subject.departmentEconomicsen_US
dc.titleBusiness Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocksen_US
dc.typeArticleen
dc.identifier.journalMacroeconomic Dynamicsen
dc.subject.keywordInside moneyen_US
dc.subject.keywordCredit shocken_US
dc.subject.keywordBayesian Vector Autoregressionen_US
dc.subject.keywordMarkov Switchingen_US
dc.subject.keywordStochastic Volatilityen_US
dc.identifier.volume19en_US
dc.identifier.issue4en_US
dc.identifier.startpage836en_US
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