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Title: Multimodality in Macro-Financial Dynamics

Author(s): Tobias Adrian, Nina Boyarchenko and Domenico Giannone

Publication Date: July 2020

Keyword(s):

Programme Area(s): Financial Economics

Abstract: We estimate the evolution of the conditional joint distribution of economic and financial conditions. While 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 macro-financial intermediary model with occasionally binding intermediary constraints.

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Bibliographic Reference

Adrian, T, Boyarchenko, N and Giannone, D. 2020. 'Multimodality in Macro-Financial Dynamics'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15088