We examine the dynamic effects of TFP news shocks in context frictions financial markets. document two new facts. First, a shock to future generates significant decline credit spread indicators along with robust improvement supply indicators. Second, we establish tight link between and that explain majority un-forecastable movements A DSGE model enriched sector Gertler-Kiyotaki-Karadi type very...

A standard assumption of structural models of default is that firms assets evolve exogenously. In this paper, we document the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm-level variables which proxy for asset composition carry explanatory power for credit spreads beyond leverage. As a result, cross-sectiona...

This study by adopting rolling regression techniques investigate whether bank and life insurance equity returns sensitivity to long term unanticipated interest rate changes has been changed since the Bank of England was granted operational independence in May 1997. Our results indicate that there may well have been changes in the way banks and life insurance companies manage interest rate risk....

The successful pursuit of the objective of low inflation by central banks in recent decades has also delivered low variability of both inflation and output. At the same time, numerous financial and other "imbalances" (defined here as significant and sustained deviations from historical norms) have emerged. Should these imbalances revert to the mean, there could be significant effects on output ...

the major challenge facing iranian economy is its overwhelming dependence on the oil exports. however, the world oil price has been subject to a lot of shocks, which have destabilized the iranian terms of trade. hence, this paper empirically examines the effect of terms of trade volatility on iran’s economic growth over 1967-2006. for this purpose, based on a garch model, a proxy for the terms ...

Although initially originated as a totally empirical relationship to explain the volume of trade between two partners, gravity equation has been the focus of several theoretic models that try to explain it. Specialization models are of great importance in providing a solid theoretic ground for gravity equation in bilateral trade. Some research papers try to improve specialization models by addi...

Many classes of microstructure models, as well as intuition, suggest that it should be easier to trade when markets are more active. In the data, however, volume and liquidity seem unrelated over time. This paper offers an explanation for this fact based on a simple frictionless model in which liquidity reflects the average risk-bearing capacity of the economy and volume reflects the changing c...

We study the impact of the technological change on asset prices in a dynamic model economy that features a stochastic technology frontier and costly technology adoption. Firms adopt the latest technology embodied in new capital to reach the stochastic technology frontier, but this decision entails an adoption cost. The model predicts that firms operating with old capital are more risky and henc...

This paper asks how well a general equilibrium agency cost model describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading, countercyclical correlation of spreads with output when shocks arising from the credit market contribute to ou...

We study a general equilibrium model with a housing market to understand the role of credit access among borrowers and show that an adverse financial shock can increase the asymmetry in the housing wealth distribution of subprime and prime borrowers. Households with better credit access can take advantage of the low housing prices during recessions, especially when the subprimers are previously...