TFP During a Credit Crunch

46 Pages Posted: 24 Sep 2010 Last revised: 20 Sep 2012

See all articles by Nicolas Petrosky-Nadeau

Nicolas Petrosky-Nadeau

Federal Reserve Banks - Federal Reserve Bank of San Francisco

Date Written: April 1, 2012

Abstract

The financial crisis of 2008 was followed by sharp contractions in aggregate output and The financial crisis of 2008 was followed by sharp contractions in aggregate output and employment and an unusual increase in aggregate total factor productivity (TFP). This paper attempts to explain these facts by modeling the creation and destruction of jobs in the presence of heterogeneity in firm productivity and frictional credit and labor markets. The aggregate level of TFP is determined by both the underlying distribution of firm productivity and the structures of the credit and labor markets. Adverse shocks to credit markets destroy the least productive jobs and slow job creation, thus raising aggregate TFP and unemployment, and reducing output.

Keywords: Aggregation, Productivity, Search, Financial frictions, Business cycles

JEL Classification: J64, E44, E32

Suggested Citation

Petrosky-Nadeau, Nicolas, TFP During a Credit Crunch (April 1, 2012). Available at SSRN: https://ssrn.com/abstract=1681649 or http://dx.doi.org/10.2139/ssrn.1681649

Nicolas Petrosky-Nadeau (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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