By exploring two of the largest economic recessions in modern U.S. history, my dissertation offers insights on policy remedies and sources of economic catastrophe.

While deficit spending continues to have a mixed record of success in spurring economic recovery, the first chapter "Recovery of 1933" co-authored with Eric M. Leeper and Bruce Preston, uncovers a policy mix in which deficit spending achieves recovery. When taking into account the monetary policy in place in 1933, we find a larger effect from deficit spending compared to the previous research on the recovery of the United States from the Great Depression (1929-1939).

Expanding credit and booming house prices were central to the Great Recession (2007-2009) tallying the worst economic contraction since the Great Depression (1929-1939). The second chapter, "Beliefs, Aggregate Risk, and the U.S. Housing Boom," develops a quantitative framework where unprecedented shifts in credit conditions are a source of optimistic beliefs about future house prices during the U.S. housing boom of the 2000s. Because agents lack historical experience in an aggregate state characterized by high productivity and loose credit conditions, they are more likely to perceive forecast errors as permanent shifts while learning about the evolution of house prices. These learning dynamics account for 20% of the empirical house price volatility observed throughout the U.S. housing boom improving upon existing frameworks that only match 5%.

The third chapter, "Lending Limits and Credit Booms," introduces off-balance sheet banking into a general equilibrium model of financial institutions and households to study the effects of regulatory policy on credit risk. By selling loans to special purpose vehicles after origination, banks earn additional revenue which they use to originate riskier loans. When the financial sector endogenously expands leverage beyond regulatory limits, risk retention rules may better mitigate credit risk compared to stricter leverage limits.