Credit constraints and the international propagation of US financial shocks

Arbeitspapier

This paper investigates whether credit constraints in the US economy amplify the international propagation of US financial shocks. We model the dynamics of the US economy jointly with global macroeconomic and financial variables using a threshold vector autoregression. This model captures regime-specific dynamics conditional on the severity of credit constraints in the US economy. We identify three main episodes of tight credit in US financial history over the past thirty years. These occur in the late-1980s, in the early 2000s, and during the 2007-09 financial crisis. We find that US financial shocks are associated with a significant contraction in global economic activity in times of tight credit. By contrast, there is little impact of US financial shocks on the global economy in normal times. This asymmetry highlights an international dimension of the US financial accelerator mechanism.

Object Details

• ISBN: 978-92-899-2202-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1954

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Multiple or Simultaneous Equation Models: Truncated and Censored Models; Switching Regression Models ; Business Fluctuations; Cycles ; Financial Crises ; International Business Cycles
• Subject: financial frictions ; financial shocks ; nonlinear dynamics ; spillover

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Metiu, Norbert ; Hilberg, Björn ; Grill, Michael
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2866/112273
• Handle: http://hdl.handle.net/10419/154387
• Last update: 10.03.2025, 11:44 AM CET