But it is also worth remembering that financial imbalances played a key role in each of the past three U.S. downturns--the risky investments and maturity mismatches associated with the savings and loan crisis and junk bond collapse; the tech boom and bust; and, most dramatically, the subprime crisis.
This suggests policy might seek to moderate financial vulnerabilities when they are likely to materially exacerbate an economic downturn, leading to deeper declines in output and higher levels of unemployment. Each of the past three U.S. recessions featured important financial imbalances, although they differed in important ways.