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What do VARS tell us about the impact of a credit supply shock?

Mumtaz, Haroon, Pinter, Gabor and Theodoridis, Konstantinos 2018. What do VARS tell us about the impact of a credit supply shock? International Economic Review 59 (2) , pp. 625-646. 10.1111/iere.12282

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In the aftermath of the recent financial crisis, a variety of structural vector autoregression (VAR) models have been proposed to identify credit supply shocks. Using a Monte Carlo experiment, we show that the performance of these models can vary substantially, with some identification schemes producing particularly misleading results. When applied to U.S. data, the estimates from the best performing VAR models indicate, on average, that credit supply shocks that raise spreads by 10 basis points reduce GDP growth and inflation by 1% after one year. These shocks were important during the Great Recession, accounting for about half the decline in GDP growth.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Wiley: No OnlineOpen
ISSN: 0020-6598
Last Modified: 22 Jul 2019 09:43

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