Is Financial Friction Irrelevant to the Great Depression? - Simple modification of the Carlstrom-Fuerst model -
AbstractIt is argued that existing theory implies that financial frictions appear as investment wedges. Since data show that the output declines in the Great Depression were mainly due to the productivity declines, it is also argued that financial frictions may not be the primary cause of the depression. By slightly modifying the model of Carlstrom and Fuerst (1997), I show that financial frictions may show up as declines in productivity. This result may restore the relevance of financial frictions to the Great Depression and other depression episodes, such as Japan's "lost decade."
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04030.
Length: 10 pages
Date of creation: Sep 2004
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-18 (All new papers)
- NEP-FIN-2004-10-18 (Finance)
- NEP-HIS-2004-10-18 (Business, Economic & Financial History)
- NEP-MAC-2004-10-18 (Macroeconomics)
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