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Goutham Gopalakrishna on A Macro-Finance model with Realistic Crisis Dynamics

PhD Candidate in Finance at EPFL-SFI, VSRC at Bendheim Center for Finance
September 28, 2022
2:50 pm
Civitas Finance Seminar

More from this series
Room 101

What causes deep recessions and slow recovery? I revisit this question and develop a macro-finance model that quantitatively matches the salient empirical features of financial crises such as a large drop in the output, a high risk premium, reduced financial intermediation, and a long duration of economic distress. The model has leveraged intermediaries featuring stochastic productivity and regime-dependent exit rate that governs the transition in and out of crises. A model without these two features suffers from a trade-off between the amplification and persistence of crises. I show that my model resolves this tension and generates realistic crisis dynamics.