Abstract: This paper identifies shocks to bank credit supply based on firms’ aggregate debt composition. I use a model where firms fund production with bonds and loans. Only bank shocks imply opposite movements in the two types of debt as firms adjust their debt composition to new credit conditions. I use this result to inform a sign-restriction VAR and identify the sources of US business cycles. Bank shocks account for a third of output fluctuations and are predictive of the bond spread.
Publication Year: 2021
Publication Date: 2021-01-01
Language: en
Type: article
Indexed In: ['crossref']
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