publication . Preprint . 2014

Credit spread variability in U.S. business cycles: The Great Moderation versus the Great Recession

Hylton Hollander; Guangling Liu;
Open Access
  • Published: 01 Jan 2014
Abstract
This paper establishes the prevailing financial factors that influence credit spread variability, and its impact on the U.S. business cycle over the Great Moderation and Great Recession periods. To do so, we develop a dynamic general equilibrium framework with a central role of financial intermediation and equity assets. Over the Great Moderation and Great Recession periods, we find an important role for bank market power (sticky rate adjustments and loan rate markups) on credit spread variability in the U.S. business cycle. Equity prices exacerbate movements in credit spreads through the financial accelerator channel, but cannot be regarded as a main driving fo...
Subjects
free text keywords: Financial intermediation, credit spreads, financial frictions, Great Recession, jel:E32, jel:E43, jel:E44, jel:E51, jel:E52
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