Working Paper: CEPR ID: DP15088
Authors: Nina Boyarchenko; Tobias Adrian; Domenico Giannone
Abstract: We estimate the evolution of the conditional joint distribution of economic and financialconditions. While the joint distribution is approximately Gaussian during normalperiods, sharp tightenings of financial conditions lead to the emergence of additionalmodes. The U.S. economy has historically resolved quickly to the “good” mode, but weconjecture that poor policy choices could lead to prolonged periods of multimodality.We argue that multimodality arises naturally in a macro-financial intermediary modelwith occasionally binding intermediary constraints.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tight financial conditions (E44) | Emergence of multimodality in the joint distribution of economic and financial conditions (E19) |
| Tight financial conditions (E44) | Elongation of the joint distribution (C46) |
| Emergence of multimodality in the joint distribution of economic and financial conditions (E19) | Adverse economic outcomes (F69) |
| Tight financial conditions (E44) | Significant losses in GDP levels (F69) |
| Tight financial conditions (E44) | Granger-cause real GDP growth (O49) |