Slow recoveries: any role for corporate leverage?

This paper examines whether financial conditions of the non-financial corporate sector can ex- plain why the recovery from recessions in the United States is slower since the mid-1980s. Lever- age by the corporate sector has increased significantly since the financial deregulation of the mid-1980s. Empirical evidence shows that slow recoveries are associated with a significant drop in the growth rates of investment and bank loans, and with a surge in the growth rates of cor- porate bonds. In an estimated dynamic stochastic general equilibrium model with a financial accelerator, counterfactual experiments based on estimates of two samples 1965-1983 and 1984- 2007 show that the non-financial corporate indebtedness affects only marginally the speed of the recovery in the two samples