In this paper, we examine empirically whether credit plays a role as a nonlinear propagator of shocks. This propagation takes the form of a threshold vector autoregression in which a regime change occurs if credit conditions cross a critical threshold. Using nonlinear impulseresponse functions,...

Previous analyses have concluded that expectations of future excess stock returns rather than future real dividend growth or real interest rates are responsible for most of the volatility in stock prices. In this paper, we employ a state-space model to model the dynamics of the log...