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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

Related research

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

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References

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  1. Galí, Jordi & van Rens, Thijs, 2010. "The Vanishing Procyclicality of Labor Productivity," IZA Discussion Papers 5099, Institute for the Study of Labor (IZA).
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  4. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  5. Wasmer, Etienne & Weil, Philippe, 2002. "The Macroeconomics of Labour and Credit Market Imperfections," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3334, C.E.P.R. Discussion Papers.
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  7. Simon Gilchrist & John C. Williams, 2000. "Putty-Clay and Investment: A Business Cycle Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 928-960, October.
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  10. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.
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  12. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
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  15. Francisco J. Buera & Yongseok Shin, 2006. "Financial Frictions and the Persistence of History," 2006 Meeting Papers, Society for Economic Dynamics 792, Society for Economic Dynamics.
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Cited by:
  1. Marlène Isore, 2012. "Essays in macro-finance," Sciences Po publications info:hdl:2441/eo6779thqgm, Sciences Po.
  2. Guillaume Rocheteau & Jose Antonio Rodriguez-Lopez, 2013. "Liquidity Provision, Interest Rates, and Unemployment," Working Papers 121311, University of California-Irvine, Department of Economics.
  3. Marlène Isoré & Urszula Szczerbowicz, 2013. "Disaster Risk in a New Keynesian Model," Working Papers 2013-12, CEPII research center.

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