Financial Business Cycles

Matteo Iacoviello

No 1053, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: recapitalizing or by deleveraging. By deleveraging, banks transform the initial redistribution shock into a classic credit crunch, and amplify and propagate the fi nancial shock to the real economy. In my benchmark experiment, credit losses (that is, a redistribution shock) of about 4% of GDP leads to a 1 percent impact decline on output, whereas they would have no effect on GDP in a model where banks are a veil. Nominal rigidities generate even larger recessions given the same shock.

Date: 2010
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Journal Article: Financial Business Cycles (2015)
Working Paper: Financial Business Cycles (2014)
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