Within this framework, crises are typically preceded by prolonged boom periods.
We show how the persistent nature of household debt shapes the answer to this question.
In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run.
We find that the best predictor of future employment for the non-employed is their duration since last employment.
For those OLF, the duration since last employment is only available via LFS histories and cannot be inferred from current-month responses.
At times, they are initiated by relatively small shocks.
Consistent with these empirical observations, this paper extends a standard macroeconomic model to include financial intermediation, long-term defaultable loans, and occasional financial crises.
To illustrate the feasibility and desirability of the onestep approach, we compare arbitrage-free dynamic term structure models estimated using both approaches.
We also provide a simulation study showing that a one-step approach can extract the information in large panels of bond prices and avoid any arbitrary noise introduced from a first-stage interpolation of yields.
Sustained periods when the real interest rate remains below the central bank's estimate of r-star can induce the agent to place a substantially higher weight on the deflation equilibrium, causing it to occasionally become self-fulfilling. In model simulations, raising the central bank's inflation target to 4% from 2% can reduce, but not eliminate, the endogenous switches to the deflation equilibrium. All of these developments may have contributed to an unusual buildup of financial instability.