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This paper examines the importance of credit market shocks in driving global business cycles over the period 1988:1-2009:4. The authors first estimate common components in various macroeconomic and financial variables of the G-7 countries. They then evaluate the role played by credit market shocks using a series of VAR models. These findings suggest that these shocks have been influential in driving global activity during the latest global recession. Credit shocks originating in the United States also have a significant impact on the evolution of world growth during global recessions.
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