The role of total factor productivity in 'Phoenix Miracles' : insights from an emerging market crisis
Key macroeconomic variables such as GDP and investment typically display a V-shaped pattern during major emerging market crises. A notable exception to that pattern is intermediated credit, which follows an L-shaped trajectory instead: it declines at first in lockstep with economic activity, but later on it fails to recover while output does. From the vantage point of “credit crunch” theories of crises, it is as if output almost literally “rises from its ashes,” prompting the metaphoric characterization of emerging markets post-collapse recoveries as Phoenix Miracles. ; This paper reorganizes the evidence for a particular emerging market crisis, the one that Argentina experienced in 2000-01, under the guide of the neoclassical growth model. Under that lens, there is nothing special about the V-shaped trajectory that GDP, investment, and labor input followed during the crisis and its aftermath. That is exactly the pattern, and in the same orders of magnitude, that a neoclassical growth model with TFP taken as exogenous would predict. Furthermore, from the vantage point of that model, there is no Phoenix Miracle: the post-collapse recovery of TFP and GDP was about as strong as the model would have predicted.
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