Frost and Fire: A Tale of Two Crises

Priit Jeenas, Alberto Martin and Vladimir Asriyan

No 1567, Working Papers from Barcelona School of Economics

Abstract: Financial crises are characterized by depressed asset prices, tight financial constraints, and misallocation of resources. Standard policy responses—such as asset purchases and low interest rates—are generally intended to alleviate these symptoms. This paper distinguishes between two types of crises that appear similar but differ fundamentally in their underlying mechanisms: fire-sale crises, where productive firms are forced to sell assets; and demand-freeze crises, where productive firms are unable to purchase assets. While both lead to similar observable outcomes, they have contrasting general equilibrium effects and may call for different policy interventions. Notably, conventional policies can be counterproductive in demand-freeze crises, as they may exacerbate financial constraints and further distort resource allocation. Empirical evidence on the pattern of capital reallocation among U.S. firms suggests that demand-freeze crises are, in fact, more common.

Keywords: asset purchases; capital reallocation; cleansing effects; credit easing; demand freezes; financial crises; financial frictions; fire sales; monetary loosening (search for similar items in EconPapers)
JEL-codes: D53 E22 E44 E60 G01 G18 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-ifn
References: Add references at CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/1567.pdf (application/pdf)

Related works:
Working Paper: Frost and fire: A tale of two crises (2026)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1567

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().