scholarly journals Credit-Market Sentiment and the Business Cycle*

2017 ◽  
Vol 132 (3) ◽  
pp. 1373-1426 ◽  
Author(s):  
David López-Salido ◽  
Jeremy C. Stein ◽  
Egon Zakrajšek
Keyword(s):  
Economic Activity ◽  
Financial Frictions ◽  
Investor Sentiment ◽  
Credit Market ◽  
Market Conditions ◽  
Market Sentiment ◽  
External Finance ◽  
Credit Supply ◽  
The Business Cycle

Abstract Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t − 2 is associated with a decline in economic activity in years t and t + 1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t − 2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this article suggests that investor sentiment in credit markets can be an important driver of economic fluctuations.

scholarly journals Credit-Market Sentiment and the Business Cycle

2015 ◽  
Author(s):  
David Lopez-Salido ◽  
Jeremy C. Stein ◽  
Egon Zakrajsek
Keyword(s):  
Business Cycle ◽  
Credit Market ◽  
Market Sentiment ◽  
The Business Cycle

scholarly journals Credit-Market Sentiment and the Business Cycle

2016 ◽  
Author(s):  
David López-Salido ◽  
Jeremy Stein ◽  
Egon Zakrajšek
Keyword(s):  
Business Cycle ◽  
Credit Market ◽  
Market Sentiment ◽  
The Business Cycle

scholarly journals A NOTE ON LEARNING IN A CREDIT ECONOMY

2014 ◽  
Vol 20 (3) ◽  
pp. 845-855 ◽  
Author(s):  
Pei Kuang
Keyword(s):  
Stability Condition ◽  
Economic Activity ◽  
Learning Behavior ◽  
Aggregate Fluctuations ◽  
Economic Agents ◽  
Collateral Constraints ◽  
Collateral Constraint ◽  
Imperfect Knowledge ◽  
The Business Cycle

This paper introduces imperfect knowledge and learning behavior of economic agents into the Kiyotaki and Moore model and studies the interaction of agents' collateral price beliefs, collateral constraint, and aggregate economic activity over the business cycle. It establishes the E-stability condition and the convergence of the real time learning process. In addition, it shows that learning strengthens the role of collateral constraints in aggregate fluctuations.

scholarly journals ECONOMIC ACTIVITY, CREDIT MARKET CONDITIONS, AND THE HOUSING MARKET

2017 ◽  
Vol 22 (7) ◽  
pp. 1769-1789 ◽  
Author(s):  
Luca Agnello ◽  
Vitor Castro ◽  
Ricardo M. Sousa
Keyword(s):  
Housing Market ◽  
Economic Activity ◽  
Hazard Function ◽  
Credit Market ◽  
European Countries ◽  
Market Conditions ◽  
Industrial Countries ◽  
Housing Boom ◽  
Main Determinants ◽  
Using Data

In this paper, we assess the characteristics of the housing market and its main determinants. Using data for 20 industrial countries over the period 1970Q1–2012Q2 and a discrete-time Weibull duration model, we find that the likelihood of the end of a housing boom or a housing bust increases over time. Additionally, we show that the different phases of the housing market cycle are strongly dependent on the economic activity, but credit market conditions are particularly important in the case of housing booms. The empirical findings also indicate that although housing booms have similar lengths in European and non-European countries, housing busts are typically shorter in European countries. The use of a more flexible specification for the hazard function that is based on cubic splines suggests that it evolves in a nonlinear way. From a policy perspective, our study can be useful for predicting the timing and the length of housing boom–bust cycles. Moreover, it highlights the importance of monetary policy by influencing lending rates and affecting the likelihood of occurrence of housing booms.

scholarly journals The Business Cycle, Investor Sentiment, and Costly External Finance

2014 ◽  
Vol 69 (3) ◽  
pp. 1377-1409 ◽  
Author(s):  
R. DAVID MCLEAN ◽  
MENGXIN ZHAO
Keyword(s):  
Business Cycle ◽  
Investor Sentiment ◽  
External Finance ◽  
The Business Cycle

ASYMMETRY AND THE AMPLITUDE OF BUSINESS CYCLE FLUCTUATIONS: A QUANTITATIVE INVESTIGATION OF THE ROLE OF FINANCIAL FRICTIONS

2016 ◽  
Vol 22 (2) ◽  
pp. 279-306 ◽  
Author(s):  
Manoj Atolia ◽  
John Gibson ◽  
Milton Marquis
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Financial Frictions ◽  
Quantitative Investigation ◽  
Macroeconomic Volatility ◽  
Access To Credit ◽  
Business Cycle Fluctuations ◽  
Key Features ◽  
The Business Cycle

We examine the quantitative significance of financial frictions that reduce firms' access to credit in explaining asymmetric business cycles characterized by disproportionately severe downturns. Using rate spread data to calibrate the severity of these frictions, we successfully match several key features of U.S. data. Specifically, although output and consumption are relatively symmetric (with output being slightly more asymmetric), investment and hours worked display significant asymmetry over the business cycle. We also demonstrate that our financial frictions are capable of significantly amplifying adverse shocks during severe downturns. Although the data suggest that these frictions are only active occasionally, our results indicate that they are still a significant source of macroeconomic volatility over the business cycle.

scholarly journals Credit-Market Sentiment and the Business Cycle

2015 ◽  
Author(s):  
David Lopez-Salido ◽  
Jeremy C. Stein ◽  
Egon Zakrajsek
Keyword(s):  
Business Cycle ◽  
Credit Market ◽  
Market Sentiment ◽  
The Business Cycle
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