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TFP during a credit crunch

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Author Info

  • Petrosky-Nadeau, Nicolas

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 3 ()
Pages: 1150-1178

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:3:p:1150-1178

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Aggregation; Productivity; Search; Job creation and destruction; Financial frictions; Business cycles;

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References

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  1. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2010. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," IZA Discussion Papers 5131, Institute for the Study of Labor (IZA).
  2. Rasmus Lentz & Dale T. Mortensen, 2005. "An Empirical Model of Growth Through Product Innovation," NBER Working Papers 11546, National Bureau of Economic Research, Inc.
  3. Nicolas Petrosky-Nadeau, 2009. "Credit, Vacancies and Unemployment Fluctuations," GSIA Working Papers 2009-E27, Carnegie Mellon University, Tepper School of Business.
  4. Aubhik Khan & Julia K. Thomas, 2013. "Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1055 - 1107.
  5. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  6. Galí, Jordi & van Rens, Thijs, 2010. "The Vanishing Procyclicality of Labor Productivity," IZA Discussion Papers 5099, Institute for the Study of Labor (IZA).
  7. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," NBER Working Papers 14768, National Bureau of Economic Research, Inc.
  8. Lawrence J. Christiano & Martin Eichenbaum & Robert J. Vigfusson, 2003. "The response of hours to a technology shock: evidence based on direct measures of technology," International Finance Discussion Papers 790, Board of Governors of the Federal Reserve System (U.S.).
  9. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  10. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  11. Francisco J. Buera & Yongseok Shin, 2006. "Financial Frictions and the Persistence of History," 2006 Meeting Papers 792, Society for Economic Dynamics.
  12. Susanto Basu & John G. Fernald, 1997. "Aggregate productivity and aggregate technology," International Finance Discussion Papers 593, Board of Governors of the Federal Reserve System (U.S.).
  13. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  14. Simon Gilchrist & John C. Williams, 1998. "Putty-clay and investment: a business cycle analysis," Finance and Economics Discussion Series 1998-30, Board of Governors of the Federal Reserve System (U.S.).
  15. Wasmer, Etienne & Weil, Philippe, 2000. "The Macroeconomics of Labor and Credit Market Imperfections," IZA Discussion Papers 179, Institute for the Study of Labor (IZA).
  16. Roberto M. Samaniego, 2008. "Entry, Exit and Investment-Specific Technical Change," PIER Working Paper Archive 08-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  17. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper Series 27_10, The Rimini Centre for Economic Analysis.
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Citations

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Cited by:
  1. Marlène Isore, 2012. "Essays in macro-finance," Sciences Po publications info:hdl:2441/eo6779thqgm, Sciences Po.
  2. Marlène Isoré & Urszula Szczerbowicz, 2013. "Disaster Risk in a New Keynesian Model," Working Papers 2013-12, CEPII research center.
  3. Guillaume Rocheteau & Jose Antonio Rodriguez-Lopez, 2013. "Liquidity Provision, Interest Rates, and Unemployment," Working Papers 121311, University of California-Irvine, Department of Economics.

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