Is Risk the Fuel of the Business Cycle? Financial Frictions and Oil Market Disturbances
Christoph Schult
IWH Discussion Papers,
No. 4,
2024
Abstract
I estimate a dynamic stochastic general equilibrium (DSGE) model for the United States that incorporates oil market shocks and risk shocks working through credit market frictions. The findings of this analysis indicate that risk shocks play a crucial role during the Great Recession and the Dot-Com bubble but not during other economic downturns. Credit market frictions do not amplify persistent oil market shocks. This result holds as long as entry and exit rates of entrepreneurs are independent of the business cycle.
Read article
The Importance of Credit Demand for Business Cycle Dynamics
Gregor von Schweinitz
IWH Discussion Papers,
No. 21,
2023
Abstract
This paper contributes to a better understanding of the important role that credit demand plays for credit markets and aggregate macroeconomic developments as both a source and transmitter of economic shocks. I am the first to identify a structural credit demand equation together with credit supply, aggregate supply, demand and monetary policy in a Bayesian structural VAR. The model combines informative priors on structural coefficients and multiple external instruments to achieve identification. In order to improve identification of the credit demand shocks, I construct a new granular instrument from regional mortgage origination.
I find that credit demand is quite elastic with respect to contemporaneous macroeconomic conditions, while credit supply is relatively inelastic. I show that credit supply and demand shocks matter for aggregate fluctuations, albeit at different times: credit demand shocks mostly drove the boom prior to the financial crisis, while credit supply shocks were responsible during and after the crisis itself. In an out-of-sample exercise, I find that the Covid pandemic induced a large expansion of credit demand in 2020Q2, which pushed the US economy towards a sustained recovery and helped to avoid a stagflationary scenario in 2022.
Read article
Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one...
See page
Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one...
See page
Joint Economic Forecast
Joint Economic Forecast The joint economic forecast is an instrument for evaluating...
See page
Financial Stability
Financial Systems: The Anatomy of the Market Economy How the financial system is...
See page
CompNet Database
The CompNet Competitiveness Database The Competitiveness Research Network (CompNet)...
See page
Working Papers
Macroeconomic Effects from Sovereign Risk vs. Knightian Uncertainty ...
See page
Research Clusters
Three Research Clusters ...
See page
Speed Projects
Speed Projects On this page, you will find the IWH EXplore Speed Projects in...
See page