Assessing the Non-Linear Effects of Credit Market Shocks

49 Pages Posted: 25 Jul 2016

See all articles by Regis Barnichon

Regis Barnichon

Federal Reserve Bank of San Francisco

Christian Matthes

Federal Reserve Bank of Richmond

Alexander Ziegenbein

Universitat Pompeu Fabra

Date Written: July 2016

Abstract

Can financial market disruptions have non-linear dynamic effects on economic activity? Using a novel econometric technique, we assess whether credit shocks have non-linear effects, notably asymmetry and state-dependence, that have been predicted theoretically but never considered empirically. We obtain two main results. First, negative shocks to credit supply have large and persistent effects on output, but positive shocks have no significant effect. Second, credit supply shocks have larger and more persistent effects in periods of weak economic growth. These findings are consistent with the presence of occasionally binding financial constraints and the recent theoretical predictions of He and Krishnamurthy (2013) and Brunnermeier and Sannikov (2014).

Suggested Citation

Barnichon, Regis and Matthes, Christian and Ziegenbein, Alexander, Assessing the Non-Linear Effects of Credit Market Shocks (July 2016). CEPR Discussion Paper No. DP11410. Available at SSRN: https://ssrn.com/abstract=2814085

Regis Barnichon (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Christian Matthes

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Alexander Ziegenbein

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

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