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The Cost of Recessions Revisited : A Reverse-Liquidationist View

Author

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  • Ricardo J. Caballero
  • Mohamad L. Hammour

Abstract

The observation that liquidations are concentrated in recessions has long been the subject of controversy. One view holds that liquidations are beneficial in that they result in increased restructuring. Another view holds that liquidations are privately inefficient and essentially wasteful. This paper proposes an alternative perspective. Based on a combination of theory with empirical evidence on gross job flows and on financial and labor market rents, we find that, cumulatively, recessions result in reduced restructuring, and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins.

Suggested Citation

  • Ricardo J. Caballero & Mohamad L. Hammour, 2001. "The Cost of Recessions Revisited : A Reverse-Liquidationist View," DELTA Working Papers 2001-05, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2001-05
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    More about this item

    Keywords

    LABOUR ; CAPITAL ; PRODUCTION;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • E29 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Other

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