CXO

The Household Sector Financial Balance, Financing Gap, Financial Markets, And Economic Cycles In The US Economy: A Structural VAR Analysis

Date Added: Nov 2010
Format: PDF

This paper investigates private net saving in the US economy - divided into its principal components, households and (nonfinancial) corporate financial balances - and its impact on the GDP cycle from the 1980s to the present. Furthermore, the authors investigate whether the financial markets (stock prices, BAA spread, and long-term interest rates) have a role in explaining the cyclical pattern of the two private financial balances. They analyze all these aspects estimating a VAR - between household and (nonfinancial) corporate financial balances (also known as the corporate financing gap), financial markets, and the economic cycle - and imposing restrictions on the matrix A to identify the structural shocks.