Is Fear Chilling the Economy?
Like rolling a 6-sided die and having a 7 come up… This 3-part essay by Research economist Julian Kozlowski examines the lingering effects of the Financial Crisis and how we now think about risk.
In Tail Risk: Part 1, The Persistent Effects of the Great Recession, Kozlowski explains that the large and unexpected shock of the Great Recession caused an increase in people's expectation of another large shock to the economy. The risk that the economy will suffer extreme negative shocks is known as "tail risk." Tail Risk: Part 2, The Missing Recovery After the Great Recession examines the lack of normal rebound of economic activity after the Great Recession, which some economists call "secular stagnation." Finally, in Tail Risk: Part 3, The Return on Safe and Liquid Assets, Kozlowski looks at interest rates and liquidity of government bonds.
Taken together, the series explores some of the key concepts and data needed to understand how the Great Recession has changed how we think about risk and the overall economy.