Great Recession Sources

The Academy of Management Executive. 1997;**11**(3):11-20

**20**:237-265

**47**(4):1605-1621

1771-1794

2012

**30**

[35] Pound J. Proxy contests and the efficiency of shareholder oversight. Journal of Financial Economics. 1988;

*Financial Crises - A Selection of Readings*

[36] Brickley JA, Lease RC, Smith CW. Ownership structure and voting on antitakeover amendments. Journal of Financial Economics. 1988;**20**:267-291

[37] Agrawal A, Jaffe JF, Mandelker GN. The post-merger performance of acquiring firms: A re-examination of an anomaly. The Journal of Finance. 1992;

[38] Cornett MM, Marcus AJ, Saunders

[39] Sias R, Starks L, Titman S. Changes in institutional ownership and stock returns: Assessment and methodology. Journal of Business. 2006;**79**:869-910

[40] Dennis PJ, Strickland D. Who blinks in volatile markets, individuals or institutions? The Journal of Finance.

[41] Baber A, Brandt MW, Cosemans M, FM. Ownership Crowded with Style: Institutional Investors, Liquidity, and Liquidity Risk. Last revised November

2002;**57**(5):1923-1949

A, Tehranian H. The impact of institutional ownership on corporate operating performance. Journal of Banking & Finance. 2007;**31**(6):

**Chapter 3**

**Abstract**

*and Shin-Ichi Nishiyama*

corporate sector for a while.

**1. Introduction**

employment.

**33**

Source of the Great Recession

*Ryo Hasumi, Hirokuni Iiboshi,Tatsuyoshi Matsumae*

**Keywords:** new Keynesian model, DSGE model, data-rich approach, Bayesian estimation, financial friction, stochastic volatility, net-worth shock

The Great Recession (Dec. 2007–Jun. 2009) is thought to have deeply worsened by simultaneous collapse of several big financial institutions besides many bankrupts of the corporate firms and households in the US economy. Recently, a couple of survey papers researching causes of the Great Recession by prominent economists (i.e., Gertler and Gilchrist [1], Kehoe et al. [2]) are published in terms of macroeconomic models, say dynamic stochastic general equilibrium (DSGE) models. Since we obtained a broad consensus that solvency and liquidity problems of the financial institutions are chief among the fundamental factors causing the recession itself, as described in above papers, it is plausible to incorporate financial frictions in both the banking and the corporate sectors of a New Keynesian (NK) DSGE model in order to analyze the recession. Meanwhile, Mian and Sufi [3] analyzed the Great Recession from the aspect of household balance sheets and

The purpose of this study is to identify what structural exogenous shocks contributed to the Great Recession by analyzing the mutual relationship among macroeconomic and financial endogenous variables in terms of business cycles from

We incorporate two structural shocks associated with balance sheets of both the financial and nonfinancial firms in a medium scale New Keynesian dynamic stochastic general equilibrium (DSGE) model. The structural shocks in the model are assumed to possess stochastic volatilities with a leverage effect. Then, we estimated the model using a data-rich estimation method and utilized up to 40 macroeconomic time series. We found the following three pieces of empirical evidence in the Great Recession (Dec. 2007–Jun. 2009) worsened further by the collapse of Lehman Brothers in September 2008. First, the net-worth shock of financial firms had gradually declined prior to a huge decrease of net-worth of nonfinancial firms. Second, the net worth shock of nonfinancial firms accounted for large weight of the business cycles after the Great Recession, in terms of the data-rich approach with the SV of structural shocks, unlike the standard DSGE model. Third, the Troubled Asset Relief Program would have immediately worked to improve balance sheets of financial institutions, although it would not have stopped worsening those of the
