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The real impact of financial crises

  • Elias Brandt
  • Scott Dressler
  • Erwan Quintin

Output falls precipitously in most emerging nations that experience financial crises. The authors conjecture that a significant part of the real impact of financial crises is due to the fact that during turbulent times firms choose to leave a large fraction of productive resources idle until business conditions improve. In the case of Mexico’s 1994–95 crisis, they calculate that capital utilization could account for as much as half the drop in standard measures of total factor productivity. Capital utilization matters much more during financial crises than during other periods, they argue, because crises create ideal conditions for large swings in utilization rates.

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File URL: http://www.dallasfed.org/assets/documents/research/efpr/v03_n01_a01.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (2004)
Issue (Month): ()
Pages: 1-15

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Handle: RePEc:fip:fedder:y:2004:p:1-15:n:01
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  1. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Working Papers 5125, National Bureau of Economic Research, Inc.
  2. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
  3. Robert P. Flood & Peter M. Garber & Charles Kramer, 1995. "Collapsing Exchange Rate Regimes: Another Linear Example," NBER Working Papers 5318, National Bureau of Economic Research, Inc.
  4. Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres, 1996. "The Mexican peso crisis: Sudden death or death foretold?," Journal of International Economics, Elsevier, vol. 41(3-4), pages 265-283, November.
  5. Andrew Atkeson & Patrick J. Kehoe, 1994. "Models of Energy Use: Putty-Putty versus Putty-Clay," NBER Working Papers 4833, National Bureau of Economic Research, Inc.
  6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  7. Thomas F. Cooley & Gary D. Hansen & Edward C. Prescott, 1994. "Equilibrium business cycles with idle resources and variable capacity utilization," Working Papers 94-22, Federal Reserve Bank of Philadelphia.
  8. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
  9. Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers 0105, Federal Reserve Bank of Dallas.
  10. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
  11. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2002. "Argentina's Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 152-165, January.
  12. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
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