Kirsanova, T. , Nolan, C. and Shafiei Deh Abad, M. (2021) Deep recessions. Economic Modelling, 96, pp. 310-323. (doi: 10.1016/j.econmod.2020.03.026)
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Abstract
This paper demonstrates how a ‘modest’ financial shock can trigger a deep recession. We suggest that two factors can help generate it. The first is that the economy has accumulated a moderately high level of private debt by the time the adverse shock occurs. The second factor is when monetary policy, set under discretion, is restricted by the zero lower bound. These factors can result in a sharp contraction in output. Perhaps surprisingly, we use a standard DSGE model with financial frictions along the lines of Jermann and Quadrini (2012) to demonstrate this result and so do not need to rely on dysfunctional interbank markets.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | Nolan, Professor Charles and Kirsanova, Professor Tatiana and Shafiei Deh Abad, Maryam |
Authors: | Kirsanova, T., Nolan, C., and Shafiei Deh Abad, M. |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Economic Modelling |
Publisher: | Elsevier |
ISSN: | 0264-9993 |
ISSN (Online): | 1873-6122 |
Published Online: | 12 April 2020 |
Copyright Holders: | Copyright © 2020 Elsevier B.V. |
First Published: | First published in Economic Modelling 96: 310-323 |
Publisher Policy: | Reproduced in accordance with the publisher copyright policy |
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