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Modeling Financial Crises

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Research has revealed several facts about financial crises based on historical data. Crises are rare events that are associated with severe recessions that are typically deeper than normal recessions. They are usually preceded by a buildup of system imbalances, particularly a rapid increase of credit. Financial crises tend to occur after prolonged booms but do not necessarily result from large shocks. Recent work shows a novel way to replicate these facts in a standard macroeconomic model, which policymakers could use to gain insights to prevent future crises.

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  • Paul, Pascal, 2019. "Modeling Financial Crises," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfel:00188
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    File URL: https://www.frbsf.org/economic-research/files/el2019-08.pdf
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    1. Paul, Pascal, 2017. "A Macroeconomic Model with Occasional Financial Crises," Working Paper Series 2017-22, Federal Reserve Bank of San Francisco.
    2. Gabriel Chodorow-Reich & Antonio Falato, 2017. "The Loan Covenant Channel: How Bank Health Transmits to the Real Economy," NBER Working Papers 23879, National Bureau of Economic Research, Inc.
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