Introducing the Credit Market Sentiment Index.

Figure 1a. Economic Activity and Credit Market Sentimentin the U.S. Economic Activity Factor Figure 1b: Economic Activity and Credit Market Sentimentin the U.S. Credit Market Sentiment Factor Figure 1c: Economic Activity and Credit Market Sentimentin the U.S. Probability of an Adverse Economic State As shown in Figure 1a, the economic activity factorcaptures well the declines in economic activity duringrecessions, as well as the quick rebound from the recentCOVID crisis. Fluctuations inthe credit market sentiment factor are associated withstrong asymmetric and nonlinear effects on economicactivity, depending not only on the magnitude and sign ofa credit market sentiment shock but also on the currenteconomic conditions. Economic Brief In a forthcoming paper, we develop a newsignal-extraction statistical model to estimate a factorsummarizing conditions in U.S. credit markets. [Extracted from the article]