Theory Ahead of Measurement? Assessing the Nonlinear Effects of Financial Market Disruptions
43 Pages Posted: 2 Dec 2016
Date Written: 2016-12-01
An important, yet untested, prediction of many macro models with financial frictions is that financial market disruptions can have highly nonlinear effects on economic activity. This paper presents empirical evidence supporting this prediction, and in particular that financial shocks have substantial (i) asymmetric and (ii) state dependent effects. 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.
Suggested Citation: Suggested Citation
Barnichon, Regis and Matthes, Christian and Ziegenbein, Alexander, Theory Ahead of Measurement? Assessing the Nonlinear Effects of Financial Market Disruptions (2016-12-01). FRB Richmond Working Paper No. 16-15, Available at SSRN: https://ssrn.com/abstract=2879284
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