Liquidity, Trends and the Great Recession
AbstractWe study the impact that the liquidity crunch in 2008-2009 had on the U.S. economy’s growth trend. To this end, we propose a model featuring endogenous growth á la Romer and a liquidity friction á la Kiyotaki-Moore. A key ﬁnding in our study is that liquidity declined around the demise of Lehman Brothers, which lead to the severe contraction in the economy. This liquidity shock was a tail event. Improving conditions in ﬁnancial markets were crucial in the subsequent recovery. Had conditions remained at their worst level in 2008, output would have been 20 percent below its actual level in 2011.
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Bibliographic InfoPaper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 016.
Length: 51 pages
Date of creation: Nov 2013
Date of revision:
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Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
- NEP-DGE-2014-04-18 (Dynamic General Equilibrium)
- NEP-MAC-2014-04-18 (Macroeconomics)
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