Slow recoveries: any role for corporate leverage?

Frank Smets and Stefania Villa

No 1602, BCAM Working Papers from Birkbeck Centre for Applied Macroeconomics

Abstract: This paper examines whether financial conditions of the non-financial corporate sector can explain why the recovery from recessions in the United States is slower since the mid-1980s. Leverage by the corporate sector has increased significantly since the financial deregulation of the mid-1980s. Empirical evidence shows that slow recoveries are associated with a significant drop in the growth rates of investment and bank loans, and with a surge in the growth rates of corporate bonds. In an estimated dynamic stochastic general equilibrium model with a financial accelerator, counterfactual experiments based on estimates of two samples - 1965-1983 and 1984-2007 - show that the non-financial corporate indebtedness affects only marginally the speed of the recovery in the two samples.

Keywords: speed of recoveries; indebtedness; financial frictions; estimated DSGE model. (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-ban, nep-dge, nep-ger, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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https://eprints.bbk.ac.uk/26650/1/26650.pdf First version, 2016 (application/pdf)

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Journal Article: Slow recoveries: Any role for corporate leverage? (2016)
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