Template-type: ReDIF-Paper 1.0
Author-Name: Roland Meeks
Author-Email: roland.meeks@nuffield.ox.ac.uk
Author-Workplace-Name: Nuffield College, University of Oxford
Title: Credit Shocks and Cycles: a Bayesian Calibration Approach
Abstract: This paper asks how well a general equilibrium agency cost model 
describes the dynamic relationship between credit variables and the business cycle. A Bayesian VAR is used to obtain probability intervals for empirical correlations. The agency cost model is found to predict the leading, countercyclical correlation of spreads with output when shocks arising from the credit market contribute to output fluctuations. The contribution of technology shocks is held at conventional RBC levels. Sensitivity analysis shows that moderate prior calibration uncertainty leads to significant dispersion in predictedcorrelations. Most predictive uncertainty arises from a single parameter.
Keywords: agency costs, credit cycles, calibration, shocks.
Classification-JEL: C11, C32, E32, E37, E44
Length: 29 pages
Creation-Date: 2006-08-25
Number: 2006-W11
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2006/w11/meeks_creditWP.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0611