A Model of Slow Recoveries from Financial Crises
51 Pages Posted: 13 Mar 2014
Date Written: December 2013
This paper documents highly persistent effects of financial crises on output, labor productivity and employment in a sample of emerging economies. To address these facts, it introduces a quantitative macroeconomic model that includes endogenous TFP growth through firm creation. Firm creators obtain funding from a financial intermediation sector which is subject to frictions. These frictions become especially severe in a financial crisis, increasing the cost of credit for firm creators and thereby lowering the growth rate of aggregate TFP. As a consequence, the model produces medium-run dynamics following crises that are in line with the data.
Keywords: Business cycles, financial crises, total factor productivity
JEL Classification: E32, E44, F41, O33
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