Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108530
Authors: 
Metiu, Norbert
Hilberg, Björn
Grill, Michael
Year of Publication: 
2015
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 04/2015
Abstract: 
We investigate whether frictions in US financial markets amplify the international propagation of US financial shocks. The dynamics of the US economy is modeled jointly with global macroeconomic and financial variables using a threshold vector autoregression that allows us to capture regime-dependent dynamics conditional on the tightness of US credit market conditions, measured by the excess bond premium on US corporate bonds. The US economy switches from a regime of unconstrained access to credit to one characterized by tight credit whenever the bond risk premium exceeds a critical threshold. US financial shocks have an insignificant effect on the global economy when borrowers have unconstrained access to credit. On the contrary, US financial shocks give rise to a worldwide economic contraction in the tight credit regime. Moreover, US financial shocks are a relatively more important driver of US and global business cycles in times of tight credit.
Subjects: 
Financial frictions
Financial shocks
Nonlinear dynamics
Spillover
JEL: 
C32
C34
E32
G01
F44
ISBN: 
978-3-95729-123-3
Document Type: 
Working Paper

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