]) or a response to variations in the aggregate volume of credit (as proposed by Christiano et al. [2007]). We then examine … in the financial sector that increase equilibrium spreads and contract the supply of credit. We conduct our analysis … using a simple DSGE model with credit frictions (Curdia and Woodford 2009), comparing the equilibrium responses to various …

subsequently experienced the highest degree of financial turmoil. A progressive relaxation of credit standards can rationalize this …