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MULTIMODALITY IN MACROFINANCIAL DYNAMICS
Author(s) -
Adrian Tobias,
Boyarchenko Nina,
Gian Domenico
Publication year - 2021
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12501
Subject(s) - multimodality , economics , distribution (mathematics) , joint (building) , gaussian , econometrics , mathematics , computer science , physics , engineering , mathematical analysis , architectural engineering , quantum mechanics , world wide web
We estimate the evolution of the conditional joint distribution of economic and financial conditions. Although the joint distribution is approximately Gaussian during normal periods, sharp tightenings of financial conditions lead to the emergence of additional modes. The U.S. economy has historically resolved quickly to the “good” mode, but we conjecture that poor policy choices could lead to prolonged periods of multimodality. We argue that multimodality arises naturally in a macrofinancial intermediary model with occasionally binding financial constraints.