Arbeitspapier

Business cycle effects of credit shocks in a DSGE model with firm defaults

This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. Firms are identical ex ante but differ ex post due to different realizations of firm-specific technology shocks, possibly leading to default by some firms. The paper advances a new modelling approach for the analysis of firm defaults and financial intermediation that takes account of the financial implications of such defaults for both households and banks. Results from a calibrated version of the model suggest that, in the steady state, a firm's default probability rises with its leverage ratio and the level of uncertainty in the economy. A positive credit shock, defined as a rise in the loan-to-deposit ratio, increases output, consumption, hours and productivity, and reduces the spread between loan and deposit rates. The effects of the credit shock tend to be highly persistent, even without price rigidities and habit persistence in consumption behavior.

Sprache
Englisch

Erschienen in
Series: Bank of Canada Working Paper ; No. 2013-19

Klassifikation
Wirtschaft
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Thema
Business fluctuations and cycles
Credit and credit aggregates
Economic models
Financial Institutions

Ereignis
Geistige Schöpfung
(wer)
Pesaran, M. Hashem
Xu, TengTeng
Ereignis
Veröffentlichung
(wer)
Bank of Canada
(wo)
Ottawa
(wann)
2013

DOI
doi:10.34989/swp-2013-19
Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Pesaran, M. Hashem
  • Xu, TengTeng
  • Bank of Canada

Entstanden

  • 2013

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