Multimodality in Macro-Financial Dynamics
52 Pages Posted: 20 Nov 2019 Last revised: 5 Dec 2020
Date Written: November 1, 2019
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.
Keywords: density impulse response, multimodality, nonparametric density estimator
JEL Classification: C14, E17, E37, G01
Suggested Citation: Suggested Citation