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The effect of the financial crisis on TFP growth: a general equilibrium approach

  • Millard, Stephen

    ()

    (Bank of England)

  • Nicolae, Anamaria

    ()

    (Durham University Business School)

In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.

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Paper provided by Bank of England in its series Bank of England working papers with number 502.

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Length: 27 pages
Date of creation: 27 Jun 2014
Date of revision:
Handle: RePEc:boe:boeewp:0502
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  1. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
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  12. Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
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  14. Fernandez-Corugedo, Emilio & McMahon, Michael & Millard, Stephen & Rachel, Lukasz, 2011. "Understanding the macroeconomic effects of working capital in the United Kingdom," The Warwick Economics Research Paper Series (TWERPS) 959, University of Warwick, Department of Economics.
  15. Robert Dekle & Kenneth Kletzer, 2004. "Deposit insurance, regulatory forbearance and economic growth: implications for the Japanese banking crisis," Working Paper Series 2004-26, Federal Reserve Bank of San Francisco.
  16. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
  17. Harrison, Richard & Oomen, Özlem, 2010. "Evaluating and estimating a DSGE model for the United Kingdom," Bank of England working papers 380, Bank of England.
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