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TFP during a credit crunch

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  • 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

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

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References

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  1. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  2. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," NBER Working Papers 14768, National Bureau of Economic Research, Inc.
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  10. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," NBER Working Papers 10254, National Bureau of Economic Research, Inc.
  11. Nicolas Petrosky-Nadeau, 2008. "Credit, Vacancies and Unemployment Fluctuations," 2008 Meeting Papers 640, Society for Economic Dynamics.
  12. 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.
  13. Simon Gilchrist & John C. Williams, 1998. "Putty-Clay and Investment: A Business Cycle Analysis," NBER Working Papers 6812, National Bureau of Economic Research, Inc.
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  15. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper Series 27_10, The Rimini Centre for Economic Analysis.
  16. Nicolas Petrovsky-Nadeau & Etienne Wasmer, 2010. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
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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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