Data and Code for: News Shocks under Financial Frictions (AEJ:MACRO)

Principal Investigator(s): View help for Principal Investigator(s) John Tsoukalas, University of Glasgow; Christoph Gortz, University of Birmingham; Francesco Zanetti, University of Oxford

Version: View help for Version V1

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Project Citation:

Tsoukalas, John, Gortz, Christoph, and Zanetti, Francesco. Data and Code for: News Shocks under Financial Frictions (AEJ:MACRO). Nashville, TN: American Economic Association [publisher], 2022. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2022-09-28. https://doi.org/10.3886/E130141V1

Project Description

Summary:

We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplification of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional `news view' of aggregate fluctuations.

Funding Sources: Leverhulme Trust (United Kingdom) (RPG-2014-255); British Academy

Scope of Project

Subject Terms: Business cycles; Financial markets; Expectations

JEL Classification:
E20 Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data)
E30 Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)

Geographic Coverage: United states of America

Time Period(s): 1984 – 2017

Data Type(s): program source code

Methodology

Data Source: St. Louis Fed FRED database; data accessed in various dates in September 2017.
Robert Shiller at Yale: http://www.econ.yale.edu/~shiller/data.htm
John Fernald at San Francisco Fed: https://www.frbsf.org/economic-research/indicators-data/total-factor-productivity-tfp/.
Federal Reserve Board: ('Updating the recession risk and the excess bond premium'); The Excel file with the GZ spread can be accessed at: https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/files/ebp_csv.csv
Centre for Research in Security Prices (CRSP) have been accessed from the Wharton research data services (WRDS): https://wrds-www.wharton.upenn.edu/.

Unit(s) of Observation: Macroeconomic and financial indicators, US sample, 1984 to 2017

Geographic Unit: USA

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V1 [2022-09-28]

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