Financial shocks, firm credit and the Great Recession

Abstract We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the “missing disinflation” during the Great Recession. We apply a Bayesian vector autoregressive model to US data and identify financial shocks through a combination of narrative and short-run sign restrictions. Our main finding is that contractionary financial shocks temporarily increase inflation. This result withstands a large battery of robustness checks. Negative financial shocks help therefore to explain why inflation did not drop more sharply in the aftermath of the financial crisis. Our analysis suggests that higher borrowing costs after negative financial shocks can account for the modest decrease in inflation after the financial crisis. A policy implication is that financial shocks act as supply-type shocks, moving output and inflation in opposite directions, thereby worsening the trade-off for a central bank with a dual mandate.

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UNSECURED CREDIT, PRODUCT VARIETY, AND UNEMPLOYMENT DYNAMICS

Macroeconomic Dynamics ◽

10.1017/s1365100520000140 ◽

2020 ◽

pp. 1-37

Author(s):

Mario Rafael Silva

Keyword(s):

Great Recession ◽

Product Variety ◽

Free Entry ◽

Financial Shocks ◽

Productivity Shocks ◽

The Great Recession ◽

Borrowing Constraint ◽

Short Run ◽

Prime Determinant ◽

Revolving Credit

Revolving credit is the prime determinant of short-run household liquidity and comoves positively with product variety and negatively with unemployment. I develop a theory of feedback between revolving credit and product development and examine its ability to explain labor market volatility. Extending the Mortensen–Pissarides model with an endogenous borrowing constraint and free entry of monopolistically competitive firms reproduces stylized facts in the data and amplifies both productivity and financial shocks through mutual causality. Higher debt limits encourage firm entry and raise product variety (the entry channel), and greater variety makes default more costly and thereby raises the equilibrium debt level (the consumption value channel). Though productivity shocks are sufficient to generate higher volatility, financial shocks are essential in approximating the time series patterns of unemployment, vacancies, and revolving credit in the data, and reproduce the rise in unemployment during the Great Recession.

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Financial Shocks or Productivity Slowdown: Contrasting the Great Recession and Recovery in the United States and United Kingdom

10.20955/r.103.99-126 ◽

2021 ◽

Vol 103 (1) ◽

Author(s):

Kieran Larkin

Keyword(s):

United States ◽

United Kingdom ◽

Great Recession ◽

The United States ◽

Financial Shocks ◽

Productivity Slowdown ◽

The Great Recession

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Forecasting the Recovery from the Great Recession: Is This Time Different?

The American Economic Review ◽

10.1257/aer.103.3.147 ◽

2013 ◽

Vol 103 (3) ◽

pp. 147-152 ◽

Cited By ~ 14

Author(s):

Kathryn M. E Dominguez ◽

Matthew D Shapiro

Keyword(s):

Great Recession ◽

The Political ◽

Slow Recovery ◽

Financial Shocks ◽

Forecast Revisions ◽

The Great Recession ◽

News Reports ◽

Us Economy ◽

The Us ◽

Fiscal Shocks

This paper asks whether the slow recovery of the US economy from the trough of the Great Recession was anticipated, and identifies some of the factors that contributed to surprises in the course of the recovery. We construct a narrative using news reports and government announcements to identify policy and financial shocks. We then compare forecasts and forecast revisions of GDP to the narrative. Successive financial and fiscal shocks emanating from Europe, together with self-inflicted wounds from the political stalemate over the US fiscal situation, help explain the slowing of the pace of an already slow recovery.

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Association of negative financial shocks during the Great Recession with depressive symptoms and substance use in the USA: the CARDIA study

Journal of Epidemiology & Community Health ◽

10.1136/jech-2020-213917 ◽

2020 ◽

pp. jech-2020-213917 ◽

Cited By ~ 1

Author(s):

Samuel Longworth Swift ◽

Tali Elfassy ◽

Zinzi Bailey ◽

Hermes Florez ◽

Daniel J Feaster ◽

...

Keyword(s):

Depressive Symptoms ◽

Alcohol Use ◽

Drug Use ◽

Great Recession ◽

Fixed Effects ◽

Household Wealth ◽

Future Research ◽

Financial Shocks ◽

The Great Recession ◽

The Usa

BackgroundThe Great Recession of 2008 was marked by large increases in unemployment and decreases in the household wealth of many Americans. In the 21st century, there have also been increases in depressive symptoms, alcohol use and drug use among some groups in the USA. The objective of this analysis is to evaluate the influence of negative financial shocks incurred during the Great Recession on depressive symptoms, alcohol and drug use.MethodsWe employed a quasi-experimental fixed-effects design, using data from adults enrolled in the Coronary Artery Risk Development in Young Adults (CARDIA) study. Our financial shock predictors were within-person change in employment status, income and debt to asset ratio between 2005 and 2010. Our outcomes were within-person change in depressive symptoms score, alcohol use and past 30-day drug use.ResultsIn adjusted models, we found that becoming unemployed and experiencing a drop in income and were associated with an increase in depressive symptoms. Incurring more debts than assets was also associated with an increase in depressive symptoms and a slight decrease in daily alcohol consumption (mL).ConclusionOur findings suggest that multiple types of financial shocks incurred during an economic recession negatively influence depressive symptoms among black and white adults in the USA, and highlight the need for future research on how economic recessions are associated with health.

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