that full credit, including © notice, is given to the source.

This paper is a substantially revised version of Christiano, Motto and Rostagno (2010). The paper expresses the views of the authors and not necessarily those of the European Central Bank, the Eurosystem or the National Bureau of Economic Research. We are especially grateful to Mark Gertler and to two referees for comments that led to substantial improvements in the paper. We also thank D. Andolfatto