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The role of total factor productivity in 'Phoenix Miracles' : insights from an emerging market crisis


  • Carlos E. Zarazaga


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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  • Carlos E. Zarazaga, 2007. "The role of total factor productivity in 'Phoenix Miracles' : insights from an emerging market crisis," Working Papers 0605, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:0605

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    References listed on IDEAS

    1. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Sudden Stops and Phoenix Miracles in Emerging Markets," American Economic Review, American Economic Association, vol. 96(2), pages 405-410, May.
    2. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
    3. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," Research Department Publications 4474, Inter-American Development Bank, Research Department.
    4. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
    5. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
    6. Hofman, Andre A, 1992. "Capital Accumulation in Latin America: A Six Country Comparison for 1950-89," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(4), pages 365-401, December.
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    Cited by:

    1. Sugawara, Naotaka & Zalduendo, Juan, 2013. "Credit-less recoveries : neither a rare nor an insurmountable challenge," Policy Research Working Paper Series 6459, The World Bank.

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    Business cycles ; Gross domestic product ; Financial markets;

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