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A Model of Slow Recoveries from Financial Crises

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    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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    File URL: http://www.federalreserve.gov/pubs/ifdp/2013/1097/ifdp1097.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1097.

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    Length: 46 pages
    Date of creation: 18 Dec 2013
    Handle: RePEc:fip:fedgif:1097
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