Balance sheet recessions One important question raised by the crisis and its aftermath is the following: are “balance sheet” recessions different from “normal” recessions and do they call for a different monetary policy treatment? Put differently: the crisis has left a legacy of cross-sectoral financial exposures that, by and large, need to be run down in the aggregate.
Probably, there exists a new financial texture (in terms of cross-sectoral borrowing and lending) that would make the economy more resilient and less conducive to financial shocks.