Abstract

http://ssrn.com/abstract=1703087
 
 

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Household Sector Financial Balance, Financing Gap, Financial Markets, and Economic Cycle in the US Economy: A Structural VAR Analysis


Paolo Casadio


Levy Economics Institute of Bard College

Antonio Paradiso


University of Rome La Sapienza; ISAE, Istituto di Studi e Analisi Economica; Bard College - The Levy Economics Institute

November 4, 2010

Levy Economics Institute, Working Papers Series No. 632

Abstract:     
This paper investigates private net saving in the US economy - divided into its principal components, households and (nonfinancial) corporate financial balances - and its impact on the GDP cycle from the 1980s to the present. Furthermore, we investigate whether the financial markets (stock prices, BAA spread, and long-term interest rates) have a role in explaining the cyclical pattern of the two private financial balances. We analyze all these aspects estimating a VAR - between household and (nonfinancial) corporate financial balances (also known as the corporate financing gap), financial markets, and the economic cycle - and imposing restrictions on the matrix A to identify the structural shocks. We find that households and corporate balances react to financial markets as theoretically expected, and that the economic cycle reacts positively to corporate balance, in accordance with the Minskyan view of the operation of the economy that we have embraced.

Number of Pages in PDF File: 16

Keywords: Household Financial Balance, Financing Gap, Business Cycle, Financial Markets, SVAR

JEL Classification: C32, E12, E20

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Date posted: November 6, 2010  

Suggested Citation

Casadio, Paolo and Paradiso, Antonio, Household Sector Financial Balance, Financing Gap, Financial Markets, and Economic Cycle in the US Economy: A Structural VAR Analysis (November 4, 2010). Levy Economics Institute, Working Papers Series No. 632. Available at SSRN: http://ssrn.com/abstract=1703087 or http://dx.doi.org/10.2139/ssrn.1703087

Contact Information

Paolo Casadio (Contact Author)
Levy Economics Institute of Bard College ( email )
Blithewood
Annandale-on-Hudson, NY 12504
Antonio Paradiso
University of Rome La Sapienza ( email )
Piazzale Aldo Moro 5
Roma, Rome 00185
Italy
ISAE, Istituto di Studi e Analisi Economica ( email )
Piazza dell' Indipendenza 4
I-00185
Italy
Bard College - The Levy Economics Institute ( email )
Blithewood
Annandale-on-Hudson, NY 12504-5000
United States
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