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Credit Shocks and Cycles: a Bayesian Calibration Approach

Meeks, R (2006) Credit Shocks and Cycles: a Bayesian Calibration Approach. UNSPECIFIED. Nuffield College Economics Papers 2006-W11.

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Abstract

This paper asks how well a general equilibrium agency cost model describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading, counter cyclical correlation of spreads with output when shocks arising from the credit market contribute to output fluctuations. The contribution of technology shocks is held at conventional RBC levels. Sensitivity analysis shows that moderate prior calibration uncertainty leads to significant dispersion in predicted correlations. Most predictive uncertainty arises from a single parameter.

Item Type: Monograph (UNSPECIFIED)
Uncontrolled Keywords: agency costs; credit cycles; calibration; shocks.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 06 Jan 2013 22:39
Last Modified: 17 Aug 2017 18:04
URI: http://repository.essex.ac.uk/id/eprint/4997

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