Slow Debt, Deep Recessions

Business credit lags GDP growth by about one year. This contributes to high leverage during recessions and slow deleveraging. We show that a model in which firms use risky long-term debt replicates this adjustment of firm debt. In the model, slow-moving has important effects for real activity. High levels issued expansions are only gradually reduced recessions. generates an adverse feedback loop between default rates low investment thereby amplifies downturn. Sluggish deleveraging slows down recovery. (JEL E23, E32, E44, G31, G32)