How Does Financial Vulnerability Amplify Housing and Credit Shocks?

How Credit Cycles across a Financial Crisis

We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled wit...

How Important Are Uncertainty Shocks in the Housing Market?

Financial frictions and shocks

This paper aims to quantify the extent to which sources of economic uctuations generate in the nancial markets. First, a novel identi cation method is introduced into a Bayesian VAR model in order to identify a nancial type shock which we refer to as a `risk news' shock. We identify the risk news shock in macroeconomic time series for the US, while simultaneously identifying other standard macr...

Financial Frictions, Financial Shocks, and Aggregate Volatility

I revisit the Great Inflation and the Great Moderation for nominal and real variables. I document a dichotomy in the evolution of the cyclical volatility of financial variables since the mid-1980s. While financial price variables are smoother during the Great Moderation, financial quantity measures experience an immoderation. A model with financial frictions and financial shocks allowing for st...

Credit Supply Shocks and Economic Activity in a Financial Accelerator Model

This paper uses the canonical New Keynesian macroeconomic model—augmented with the standard financial accelerator mechanism—to study the extent to which disruptions in financial markets can account for U.S. economic fluctuations during the 1985–2009 period. The key feature of the model is that financial shocks drive a wedge between the required return on capital and the safe rate of return on h...