In a seminal paper, Davis and Haltiwanger (1990) demonstrate that recessions are associated with an increase in job reallocation, at least in the manufacturing sector. The conventional view has interpreted this as evidence of "cleansing" effects: less productive jobs are destroyed in recessions, and resources are reallocated towards more productive uses. Thus recessions serve to improve allocative efficiency. This paper shows that when credit market frictions are introduced, the result can be reversed. That is, the most efficient jobs are destroyed in recessions, resourses are reallocated towards less productive uses, and misallocation is exacerbated.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1251.
Length: Date of creation: Jan 1999 Date of revision: Handle: RePEc:nwu:cmsems:1251
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Kiminori Matsuyama, 1998.
"Endogenous Inequality,"
Discussion Papers
1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Other versions:
Kiyotaki, Nobuhiro & Moore, John, 1997.
"Credit Cycles,"
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 211-48, April.
Other versions:
Nobuhiro Kiyotaki & John Moore, 1995.
"Credit Cycles,"
NBER Working Papers
5083, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
John Moore & Nobuhiro Kiyotaki, .
"Credit Cycles,"
Discussion Papers
1995-5, Edinburgh School of Economics, University of Edinburgh.
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