Private Sectoral Balances, Financial Markets, and Business Cycles in the US Economy

This talk will discuss the dynamic interaction between private-sector financial balances, financial conditions, and the business cycle in the United States, with a focus on the distinct roles played by households and non-financial corporations. Motivated by balance-sheet and Minskyan perspectives on macro-financial instability, we analyze how demand and financial shocks propagate through the economy and how their effects depend on cyclical conditions, financial stress, and balance-sheet positions. The presenters' research shows that private-sector financial balances respond strongly to financial shocks, but in systematically different ways across sectors and states of the economy. Their findings highlight the central role of private-sector balance sheets in shaping macro-financial dynamics and underscore the importance of distinguishing between household and corporate balances when assessing cyclical risks and financial vulnerability.