In this paper, we investigate the instability in a self-exciting regime-switchingautoregressive model that is locally stable in each of its regimes respectively. It turnsout that the stability locally in each of the regimes is not sufficient to guarantee thestability of the model. The mechanism...

Over-borrowing and financial stress has recently become an important issue in macroeconomic and policy discussions in the US as well as in the EU. In this paper we study two regimes of financial stress. In a regime of high financial stress, stress shocks can have large and persistent impacts on...