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Article

Nonfinancial sector debt and the U.S. Great Moderation: Evidence from flow-of-funds data

Citation
Grydaki M & Bezemer D (2019) Nonfinancial sector debt and the U.S. Great Moderation: Evidence from flow-of-funds data. International Journal of Finance & Economics, 24 (1), pp. 80-96. https://doi.org/10.1002/ijfe.1650

Abstract
In the mid‐1980s, two shifts occurred in the US economy: the strong decline of macroeconomic volatility and the strong increase of borrowing by the nonfi-nancial sector above the level of output growth until 2007. Since access to credit may decrease output fluctuations, we hypothesize that during the Great Moderation borrowing by the nonfinancial sector in excess of gross domestic product (GDP) growth moderated GDP fluctuations. We estimate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models over 1954– 2008 to measure output growth volatility and run Vector Autoregressive (VAR) models and a counterfactual simulation in order to analyse the relation of credit growth in excess of output growth and output growth volatility.

Keywords
Economics and Econometrics; Accounting; Finance; causality; credit; Great Moderation; VAR

Journal
International Journal of Finance & Economics: Volume 24, Issue 1

StatusPublished
Author(s)Grydaki, Maria; Bezemer, Dirk
FundersInstitute for New Economic Thinking
Publication date31/01/2019
Publication date online30/07/2018
Date accepted by journal26/06/2018
URLhttp://hdl.handle.net/1893/27636
PublisherWiley
ISSN1076-9307
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