Financial Crises and Total Factor Productivity

41 Pages Posted: 5 Apr 2005

See all articles by Felipe Meza

Felipe Meza

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica

Erwan Quintin

Federal Reserve Bank of Dallas

Date Written: March 22, 2005

Abstract

Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Mexico and Asia. These falls are unusual in magnitude and present a difficult challenge for the standard small open economy neoclassical model. We show in the case of Mexico's 1994-95 crisis that the model predicts that inputs and output should have fallen much more than they did. Using models with endogenous factor utilization, we find that capital utilization and labor hoarding can account for a large fraction of the TFP fall during the crisis. However, these models also predict that output should fall significantly more than in the data. Given the behavior of TFP, the biggest challenge may not be explaining why output falls so much following financial crises, but rather why it falls so little.

Keywords: Financial crises, total factor productivity, output fluctuations

JEL Classification: E32, F41, J24

Suggested Citation

Meza, Felipe and Quintin, Erwan, Financial Crises and Total Factor Productivity (March 22, 2005). Available at SSRN: https://ssrn.com/abstract=695882 or http://dx.doi.org/10.2139/ssrn.695882

Felipe Meza (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10700
Mexico

Erwan Quintin

Federal Reserve Bank of Dallas ( email )

PO Box 655906
Dallas, TX 75265-5906
United States

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