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Federal Reserve Bank of New York
Staff Reports
Dynamic effects of credit shocks in a data-rich environment
Jean Boivin
Marc Giannoni
Dalibor Stevanovic

We examine the dynamic effects of credit shocks using a large data set of U.S. economic and financial indicators in a structural factor model. An identified credit shock resulting in an unanticipated increase in credit spreads causes a large and persistent downturn in indicators of real economic activity, labor market conditions, expectations of future economic conditions, a gradual decline in aggregate price indices, and a decrease in short- and longer-term riskless interest rates. Our identification procedure, which imposes restrictions on the response of a small number of economic indicators, yields interpretable estimated factors, and allows us to perform counterfactual experiments. Such an experiment suggests that credit spread shocks have largely contributed to the deterioration in economic conditions during the Great Recession.

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Jean Boivin & Marc Giannoni & Dalibor Stevanovic, Dynamic effects of credit shocks in a data-rich environment, Federal Reserve Bank of New York, Staff Reports 615, 2013, revised 01 Oct 2016.
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Keywords: credit shocks; FAVAR; structural factor analysis
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