This paper examines why some financial stress episodes lead to economic downturns. The paper identifies episodes of … financial turmoil using a financial stress index (FSI), and proposes an analytical framework to assess the impact of financial … stress - in particular banking distress - on the real economy. It concludes that financial turmoil characterized by banking …

survey of U.S. households, we document the prevalence of financial stress in U.S. households and a strong relationship … between financial stress and measures of financial constraints. We incorporate financial stress into an otherwise standard … requires two equally important components: financial stress itself and naivete about financial stress. Specifically …