Financial Instability and the Euro Area Macroeconomic Dynamics

Abstract

How different have the role played by the financial sector during the doubledip recession been from historical patterns ? Using regime-switching models, I reach two main answers. First, the experience since the recession is the result of sporadic changes in the systematic and non-systematic behavior of financial system. More generally, changes in systematic part operate in ’financial distress’ periods, where the adverse effects on output of a financial shock are more than twice as large and fast as those in ’normal’ periods. Second, counterfactual analyses suggest that the changing systematic component accounted for up to 4 percentage points of output growth drops during the two severe recessions.

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Cite this paper

@inproceedings{Challe2014FinancialIA, title={Financial Instability and the Euro Area Macroeconomic Dynamics}, author={Edouard Challe and Julien Matheron and Eric Mengus and Benoit Mojon and Jim Nason and D Michael Waggoner}, year={2014} }