Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/183332 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper No. 2150
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks. In a model that is capable of matching asset pricing moments, a short-lived shock that destroys a small fraction of the economy's stock of pledgeable collateral generates a persistent recession, a stock market crash, and a flight-to-safety effect. This novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks.
Subjects: 
Liquidity constraints
equity premium
Great Recession
JEL: 
E32
E44
G10
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3255-4
Document Type: 
Working Paper

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