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Working Paper
Theory Ahead of Measurement? Assessing the Nonlinear Effects of Financial Market Disruptions
An important, yet untested, prediction of many macro models with financial frictions is that financial market disruptions can have highly nonlinear effects on economic activity. This paper presents empirical evidence supporting this prediction, and in particular that financial shocks have substantial (i) asymmetric and (ii) state dependent effects. First, negative shocks to credit supply have large and persistent effects on output, but positive shocks have no significant effect. Second, credit supply shocks have larger and more persistent effects in periods of weak economic growth.
Journal Article
The Financial Crisis at 10: Will We Ever Recover?
A decade after the last financial crisis and recession, the U.S. economy remains significantly smaller than it should be based on its pre-crisis growth trend. One possible reason lies in the large losses in the economy?s productive capacity following the financial crisis. The size of those losses suggests that the level of output is unlikely to revert to its pre-crisis trend level. This represents a lifetime present-value income loss of about $70,000 for every American.