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Title:The household sector financial balance, financing gap, financial markets, and economic cycles in the US economy: A structural VAR analysis PDF Logo
Authors:Casadio, Paolo
Paradiso, Antonio
Issue Date:2010
Series/Report no.:Working paper, Levy Economics Institute 632
Abstract:This paper investigates private net saving in the US economy - divided into its principal components, households and (nonfinancial) corporate financial balances - and its impact on the GDP cycle from the 1980s to the present. Furthermore, we investigate whether the financial markets (stock prices, BAA spread, and long-term interest rates) have a role in explaining the cyclical pattern of the two private financial balances. We analyze all these aspects estimating a VAR - between household and (nonfinancial) corporate financial balances (also known as the corporate financing gap), financial markets, and the economic cycle - and imposing restrictions on the matrix A to identify the structural shocks. We find that households and corporate balances react to financial markets as theoretically expected, and that the economic cycle reacts positively to corporate balance, in accordance with the Minskyan view of the operation of the economy that we have embraced.
Subjects:household financial balance
financing gap
business cycle
financial markets
SVAR
JEL:C32
E12
E20
Document Type:Working Paper
Appears in Collections:Working Papers, Levy Economics Institute of Bard College

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