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Factor Utilization and the Real Impact of Financial Crises

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  • Meza Felipe

    () (Universidad Carlos III de Madrid)

  • Quintin Erwan

    () (Federal Reserve Bank of Dallas)

Abstract

Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Latin America and Asia. We study the ability of various versions of the small open economy neoclassical growth model to account for the behavior of inputs, output, and aggregate productivity during Mexico's 1994-95 crisis. We find that that capital utilization and labor hoarding can account for a large fraction of the fall in measured productivity. While capital utilization alone does little to improve the performance of the model during the crisis, introducing labor hoarding significantly reduces the gap between the evidence and the predicted fall in output and hours.

Suggested Citation

  • Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, September.
  • Handle: RePEc:bpj:bejmac:v:7:y:2007:i:1:n:33
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