Business cycles, financial conditions, and nonlinearities

Using a Bayesian threshold vector autoregression model for the US economy, this paper tests whether nonlinear dynamics can arise from endogenous interactions between traditional business cycles, depicted by investment decisions, profitability levels and aggregate demand levels, financial conditions, credit market thus considering that latter are important sources of instability possible propagators other shocks. The results support characterization in transmission shocks since there is evidence asymmetric responses variables across two different regimes stress, responding more strongly during loose conditions.