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A Model of Slow Recoveries from Financial Crises

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Abstract

This paper documents highly persistent effects of financial crises on output, labor productivity and employment in a sample of emerging economies. To address these facts, it introduces a quantitative macroeconomic model that includes endogenous TFP growth through firm creation. Firm creators obtain funding from a financial intermediation sector which is subject to frictions. These frictions become especially severe in a financial crisis, increasing the cost of credit for firm creators and thereby lowering the growth rate of aggregate TFP. As a consequence, the model produces medium-run dynamics following crises that are in line with the data.

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  • Albert Queraltó, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers 1097, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1097
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