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Slow recoveries: Any role for corporate leverage?

Listed author(s):
  • Smets, Frank
  • Villa, Stefania

This paper examines whether financial conditions of the non-financial corporate sector can explain why the recovery from recessions in the United States is slower since the mid-1980s. Leverage by the corporate sector has increased significantly since the financial deregulation of the mid-1980s. Empirical evidence shows that slow recoveries are associated with a significant drop in the growth rates of investment and bank loans, and with a surge in the growth rates of corporate bonds. In an estimated dynamic stochastic general equilibrium model with a financial accelerator, counterfactual experiments based on estimates of two samples – 1965–1983 and 1984–2007 – show that the non-financial corporate indebtedness affects only marginally the speed of the recovery in the two samples.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188916301026
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 70 (2016)
Issue (Month): C ()
Pages: 54-85

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Handle: RePEc:eee:dyncon:v:70:y:2016:i:c:p:54-85
DOI: 10.1016/j.jedc.2016.06.003
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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