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We also show that a government subsidy on collateral liquidity and the endogenous accumulation of liquidity inventory help dampen the liquidity spiral by shoring up recovery rates.Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.For more information, see the latest announcement from the NBER's Business Cycle Dating Committee, dated 9/20/10.During periods of financial turmoil, increases in risk lead to higher default, foreclosure, and fire sales.This paper introduces a costly liquidation process for foreclosed collateral and endogenous recovery rates in a dynamic stochastic general equilibrium model of the financial accelerator.

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