Credit market heterogeneity, balance sheet (in)dependence, financial shocks
Stellenbosch Working Paper Series No. WP15/2016Publication date: 2016
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
This paper presents a real business cycle model with financial frictions and two credit markets to investigate the qualitative and quantitative relevance of credit market heterogeneity. To address this line of inquiry we contrast the transmission of financial shocks in an economy where loans are the only form of credit to one in which both loans and bonds exist. We estimate the model using Bayesian methods over the sample period 1985Q1 - 2015Q1 for the U.S. economy. We find that credit market heterogeneity plays an important role in attenuating the impact of financial shocks by allowing borrowers to substitute away from the affected credit market. The shock attenuation property of credit market heterogeneity works through asset prices and substitution toward alternative credit types. Bank balance sheet linkages reduce the shock attenuation effect associated with heterogeneous credit markets. The origination of financial shocks can influence both the size and the persistence of their impact.
JEL Classification:E32, E43, E44, E51, E52, E20
Keywords:Credit Market, Business Cycle, Financial Intermediation, Operational Diversification, Heterogeneity, DSGE
Download: PDF (354 KB)Login
(for staff & registered students)
Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
Read the full issue
Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
Read the full issue