Financial Stress Regimes and the Macroeconomy

Some financial stress events lead to macroeconomic downturns, while others appear to be isolated to financial markets. We identify financial stress regimes using a model that explicitly links financial variables to macro‐economic outcomes. The stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection. Our identified stress regimes are associated with corporate credit tightening and with NBER recessions. An exogenous deterioration in our financial conditions index has strong negative effects in economic activity, and negative amplification effects on inflation in the stress regime. These results are obtained with a novel factor‐augmented vector autoregressive model with smooth‐transition regimes (FASTVAR).     

The macroeconomic relevance of bank and nonbank credit: An exploration of U.S. data

This paper exploits the Financial Accounts of the United States to derive long time series of bank and nonbank credit to different sectors, and to examine the cyclical behavior of these series in relation to (i) the long-term business cycle, (ii) recessions and recoveries, and (iii) systemic financial crises. We find that bank and nonbank credit exhibit different dynamics throughout the business cycle. We also examine the role of bank and nonbank credit in the creation of financial interconnections and illustrate a method to conduct macro-financial stability assessments.     

Credit crises, money and contractions: An historical view

The relatively infrequent nature of major credit distress events makes an historical approach particularly useful. Using a combination of historical narrative and econometric techniques, we identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of monetary policy, and document the subsequent effect on output. Using turning points defined by the Harding-Pagan algorithm, we identify and compare the timing, duration, amplitude and co-movement of cycles in money, credit and output. Regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse.     

Credit cycles and macro fundamentals

We use an intensity-based framework to study the relation between macroeconomic fundamentals and cycles in defaults and rating activity. Using Standard and Poor's U.S. corporate rating transition and default data over the period 1980–2005, we directly estimate the default and rating cycle from micro data. We relate this cycle to the business cycle, bank lending conditions, and financial market variables. In line with earlier studies, the macro variables appear to explain part of the default cycle. However, we strongly reject the correct dynamic specification of these models. The problem is solved by adding an unobserved dynamic component to the model, which can be interpreted as an omitted systematic credit risk factor. By accounting for this latent factor, many of the observed macro variables loose their significance. There are a few exceptions, but the economic impact of the observed macro variables for credit risk remains low. We also show that systematic credit risk factors differ over transition types, with risk factors for downgrades being noticeably different from those for upgrades. We conclude that portfolio credit risk models based only on observable systematic risk factors omit one of the strongest determinants of credit risk at the portfolio level. This has obvious consequences for current modeling and risk management practices.     

CORPORATE LIQUIDITY AND NBER RECESSION ANNOUNCEMENTS

Using announcement memos released by the National Bureau of Economic Research (NBER), we show that corporations increase liquidity during the quarter the NBER announces a peak in the business cycle. This reaction is primarily restricted to memos about peaks in the business cycle, whether it is a preliminary announcement or an official confirmation. Federal Open Market Committee and other monetary policy news, real‐time data releases, and tightening credit conditions do not drive the increase. This finding adds to the precautionary cash holdings literature by suggesting that corporations adjust liquidity not necessarily before recessions, but upon confirmation of a recession.     

Director Networks and Credit Ratings

We explore the effect of director social capital, directors with large and influential networks, on credit ratings. Using a sample of 11,172 firm‐year observations from 1999 to 2011, we find that larger board networks are associated with higher credit ratings than both firm financial data and probabilities of default predict. Near‐investment grade firms improve their forward‐looking ratings when their board is more connected. Last, we find that larger director networks are more beneficial during recessions, and times of increased financial uncertainty. Our results are robust to controls for endogeneity. Tests confirm that causality runs from connected boards to credit ratings.     

The Great Recession: US dynamics and spillovers to the world economy

This paper provides an empirical investigation of both the within-US and international channels of transmission of macroeconomic and financial shocks by means of a 50-country macroeconometric model (estimated over the 1980-2009 period), including measures of excess liquidity and financial fragility, specifically designed in order to evaluate the relevance of the boom-bust credit cycle view put forward as an interpretation of the recent “Great Recession” episode. We find that such a view is consistent with the empirical evidence. Moreover, concerning the real effects of financial shocks within the US, we detect stronger evidence of an asset prices channel, rather than a liquidity channel. Concerning the spillovers to the world economy, we find that while financial disturbances are transmitted to foreign countries through US house and stock price dynamics, as well as excess liquidity creation, the trade channel is the key trasmission mechanism of real shocks.     

The Allocation of Aggregate Risk,Secondary Market Trades,and Financial Boom–Bust Cycles

The financial crisis of 2007–08 started with the collapse of the market for collateralized debt obligations backed by subprime mortgages. In this paper we present a mechanism aimed at explaining how a freeze in a secondary debt market can be amplified and propagated to the real economy, and thereby cause a recession. Moreover, we show why such a process is likely to be especially strong after a prolonged expansion based on the growth of consumer credit and endogenously low risk premia. Hence, our model offers a new perspective on the links between the real and financial sectors, and we show how it can help make sense of several macro‐economic features of the 2001–09 period. The key elements of the model are heterogeneity across agents in terms of risk tolerance, a financial sector that allocates systematic risk efficiently across agents, and real decisions that depend on the price of risk.     

Understanding Bank and Nonbank Credit Cycles: A Structural Exploration

We explore the structural drivers of bank and nonbank credit cycles using a medium-scale dynamic stochastic general equilibrium (DSGE) model with two types of financial intermediation. We posit economywide and sectoral disturbances in both macro and financial sectors. We estimate that sectoral shocks to the balance sheets of entrepreneurs are important for fluctuations in bank and nonbank credit growth at the business cycle frequency. Economywide entrepreneurial risk shocks gain predominance for explaining the lower frequency comovement between the two series. Macro shocks play very little role in explaining financial cycles.     

经济周期、宏观调控与银行监管

本文在分析中国经济周期特征和成因的基础上,认为政府主导下的投资和信贷波动是导致中国经济波动的主要因素。目前,中国平滑经济波动的金融宏观调控手段主要包括信贷控制和指导、存款准备金制度、利率和汇率政策及公开市场业务等措施。随着中国经济的开放化、法治化和市场化,需要进一步发挥银行监管在金融宏观调控中的作用,在实践中主要就在于建立和完善以资本充足率为核心的监管调控体系、以透明独立为特征的监管组织体系和以准确快捷为目标的风险预警和测试体系。     

The Stability of Tax Elasticities over the Business Cycle in European Countries

We estimate short‐ and long‐run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short‐run tax elasticity changes according to the business cycle. We estimate a two‐state Markov‐switching regression on a novel data set of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of personal income taxes, corporate income taxes, indirect taxes and social contributions tend to be larger during recessions. Estimates of long‐run elasticities are in line with existing literature.     

Business Cycles and the Relation between Security Returns and Earnings

This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity.     

Stock Returns and the Business Cycle

This article examines whether movements in economic factors dictated by the dividend discount model can explain broad movements in stock returns over the business cycle. As anticipated, stock returns decrease throughout economic expansions and become negative during the first half of recessions. Returns are largest during the second half of recessions, suggesting an important role for expected earnings. These results are consistent with the notion that expected stock returns vary inversely with economic conditions, yet suggest that realized returns are especially poor indicators of expected returns prior to turning points in the business cycle.     

How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels

Credit supply expansion can affect an economy by increasing productive capacity or by boosting household demand. In this study, we develop a test to determine if the household demand channel is present, and we implement the test using both a natural experiment in the United States in the 1980s and an international panel of 56 countries over the last several decades. Consistent with the importance of the household demand channel, we find that credit supply expansion boosts nontradable sector employment and the price of nontradable goods, with limited effects on tradable sector employment. Such credit expansions amplify the business cycle and lead to more severe recessions.     

Credit conditions and recoveries from financial crises

Recoveries from recessions associated with a financial crisis tend to be sluggish. In this paper, we present evidence that stressed credit conditions are an important factor constraining the pace of recovery. In particular, using industry-level data, we find that industries relying more on external finance grow more slowly than other industries during recoveries from recessions associated with financial crises. Additional tests, based on establishment size, on alternative definitions of financial crises, and on corporate-government interest rate spreads, support the findings. Moreover, for subsets of industries where financial frictions are more severe, we find much stronger differential growth effects.     

混频数据信息下的时变货币政策传导行为研究——基于混频TVP-FAVAR模型

现实经济环境中,货币政策操作受到金融市场及宏观经济信息的共同影响.如何基于混频大数据信息分析货币政策行为机制是需解决的现实问题.为此,本文提出一种混频时变参数因子增广向量自回归(MF-TVP-FAVAR)模型.基于宏观经济及金融市场等多维度混频数据信息的实证结果表明:首先,MF-TVP-FAVAR模型在宏观金融混频数据中提取的金融形势指数(FCI)能较好地表征宏观经济先行趋势,为货币政策的制定提供前瞻性信息.其次,混频TVP-FAVAR模型可以捕捉价格型和数量型货币政策传导的高频时变特征.与货币供应量相比,利率传导对产出的影响具有滞后性.利率传导随着利率市场化改革愈发畅通,而信贷传导机制因财政政策搭配等问题日渐受阻.再次,货币政策传导效果受到经济周期影响,无论产出效应还是价格效应,经济上行时期,货币政策传导机制都比经济衰退时期更加通畅.价格型和数量型传导机制在经济下行时的作用效果均会减弱,但数量型货币政策更易受到经济周期的影响.最后,货币政策对FCI的冲击响应具有时变性,说明金融市场信息冲击对我国货币政策调控具有结构性的动态影响.货币当局制定尤其是微调货币政策时应及时评估金融市场信息冲击的影响.     

Cyclical Changes in Firm Volatility

We characterize trends and cycles in the volatility of U.S. firms using a measure that we argue more cleanly captures firm‐specific volatility in sales and earnings growth than standard measures do. While earlier literature has emphasized a trend increase in the volatility of publicly traded firms, we find that a typical publicly traded firm has become more stable. We find that the negative association between firm‐specific volatility and the business cycle is weaker than earlier research based on dispersion measures suggests. We find that during the Great Recession of 2007–2009, firm‐specific volatility increased moderately but never substantially exceeded its sample mean. Our results are inconsistent with the hypothesis that firm‐specific volatility is an important driver of the business cycle, as it theoretically could be through an effect of default risk on credit spreads.     

Asymmetric effects of the business cycle on bank credit risk

Prior empirical research on the relation between credit risk and the business cycle has failed to properly investigate the presence of asymmetric effects. To fill this gap, we examine this relation both at the aggregate and the bank level exploiting a unique dataset on Italian banks’ borrowers’ default rates. We employ threshold regression models that allow to endogenously establish different regimes identified by the thresholds over/below which credit risk is more/less cyclical. We find that not only are the effects of the business cycle on credit risk more pronounced during downturns but cyclicality is also higher for those banks with riskier portfolios.     

以创新带动传统信贷业务市场拓展

本文通过分析当前国内金融市场现状并借鉴国外金融市场发展经验,认为银行传统信贷业务仍然具有良好的发展前景,在未来一定时期内仍将是企业融资的主渠道,是银行开展其他金融服务的基础和平台,并且结构将适应经济结构变化不断优化.针对近年来银行传统信贷发展面临的资本约束、金融脱媒和利率市场化等冲击,提出了以创新手段带动银行传统信贷业务和市场拓展的观点,即以理念创新重新定位传统信贷业务市场,以价格创新应对资本约束和利率市场化,以科技创新优化传统信贷发展模式,以产品创新和流程创新解决传统信贷难点,以营销创新推动信贷市场拓展,以手段创新加强信贷风险管理.     

Quantitative wave model of macro-finance

This paper presents macro-finance as ensemble of economic agents and suggests use risk ratings of economic agents as their coordinates on economic space. Financial variables of separate economic agents are defined as functions of time and coordinates on economic space. Aggregations of financial variables of separate economic agents with coordinates near point x on economic space define macro-financial variables as function of x. Hydrodynamic-like equations describe evolution and mutual dependence between macro-financial variables. As example, for simple model of mutual dependence between macro-financial Demand on Investment and Interest Rate we derive hydrodynamic-like equations in a closed form. Perturbations of macro financial variables can generate waves those propagate on economic space and we derive wave equations. Macro financial waves can propagate on economic space with exponential growth of amplitudes and cause time fluctuations of finance variables that may model financial and business cycles. Variety of macro financial waves on economic space gives new look on internal dynamics of macro finance and reveals hidden complexity of macro financial modeling and forecasting.