Credit spreads on household and business loans move in lockstep spike every recession. We propose a theory as to why banks tighten their lending standards following drop market sentiment. The key feature is procyclical shadow banking sector that shifts risk from traditional investors through securitisation. fit the model euro‑area data find sentiment shocks are main driver of financial cycles o...

This paper suggests that business cycles may be a manifestation of coupled real economy and stock market dynamics describes mechanism can generate economic fluctuations consistent with observed cycles. To this end, we seek to incorporate into the macroeconomic framework dynamic model based on opinion interactions (Gusev et al., 2015). We derive from microfoundations, provide its empirical verif...