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Lookup NU author(s): Dr Tasos Evgenidis
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
© 2022, The Author(s). This paper contributes to a fuller understanding of macroeconomic outcomes to financial market disturbances and the central bank’s role in financial stability. Our two major contributions are conceptual and econometric. Conceptually, we introduce phases of the business cycle and econometrically we employ Bayesian VARs. We document that a shock that increases credit to non-financial sector leads to a persistent decline in economic activity. In addition, we examine whether the behavior of financial variables is useful in signaling the 2007–2009 recession. The answer is positive as our BVAR generates early warning signals pointing to a sustained slowdown in growth. We propose that the expansion phase of the business cycle can be subdivided into an early and a late expansion. Based on this distinction, we show that if the Fed had raised the policy rate when the economy moved from the early to late expansion, it could have mitigated the severity of the 2007–2009 recession.
Author(s): Evgenidis A, Malliaris AG
Publication type: Article
Publication status: Published
Journal: Review of Quantitative Finance and Accounting
Year: 2022
Volume: 59
Pages: 429-456
Print publication date: 01/08/2022
Online publication date: 20/02/2022
Acceptance date: 03/02/2022
Date deposited: 17/03/2022
ISSN (print): 0924-865X
ISSN (electronic): 1573-7179
Publisher: Springer New York LLC
URL: https://doi.org/10.1007/s11156-022-01045-z
DOI: 10.1007/s11156-022-01045-z
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