that it is likely to proxy for more fundamental disturbances to the smooth functioning of the fi…nancial sector. To corroborate this interpretation, we show that it correlates strongly with interest rate spreads and that it played a particularly important role in the recession of 2008.

We estimate a DSGE model with imperfectly competitive products and labor markets, and sticky prices and wages. We use the model to back out two counterfactual objects: potential output, i.e. the level of output that would prevail under perfect competition, and natural output, i.e. the level of...