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Lliquidity, trends, and the great recession

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Abstract

The authors study the impact that the liquidity crunch in 2008-2009 had on the U.S. economy?s growth trend. To this end, the authors propose a model featuring endogenous productivity a la Romer and a liquidity friction a la Kiyotaki-Moore. A key finding in the authors? study is that liquidity declined around the Lehman Brothers? demise, which led to the severe contraction in the economy. This liquidity shock was a tail event. Improving conditions in financial markets were crucial in the subsequent recovery. Had conditions remained at their worst level in 2008, output would have been 20 percent below its actual level in 2011. The authors show that a subsidy to entrepreneurs would have gone a long way averting the crisis.

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  • Pablo Guerrón-Quintana & Ryo Jinnai, 2014. "Lliquidity, trends, and the great recession," Working Papers 14-24, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:14-24
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    Cited by:

    1. Garga, Vaishali & Singh, Sanjay R., 2021. "Output hysteresis and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 871-886.
    2. Michael Redmond & Willem Van Zandweghe, 2016. "The Lasting Damage from the Financial Crisis to U.S. Productivity," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-3, March.
    3. Daisuke Ikeda & Takushi Kurozumi, 2019. "Slow Post-financial Crisis Recovery and Monetary Policy," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 82-112, October.
    4. Marco Luca Pinchetti, 2017. "Creative Destruction Cycles: Schumpeterian Growth in an Estimated DSGE Model," Working Papers ECARES ECARES 2017-04, ULB -- Universite Libre de Bruxelles.
    5. Bianchi, Francesco & Kung, Howard & Morales, Gonzalo, 2019. "Growth, slowdowns, and recoveries," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 47-63.
    6. Keiichiro Kobayashi & Daichi Shirai, 2012. "Debt-Ridden Borrowers and Productivity Slowdown," CIGS Working Paper Series 14-005E, The Canon Institute for Global Studies.
    7. Gauti B. Eggertsson & Neil R. Mehrotra & Sanjay R. Singh & Lawrence H. Summers, 2016. "A Contagious Malady? Open Economy Dimensions of Secular Stagnation," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(4), pages 581-634, November.
    8. Ma, Chang, 2020. "Financial stability, growth and macroprudential policy," Journal of International Economics, Elsevier, vol. 122(C).
    9. Moran, Patrick & Queralto, Albert, 2018. "Innovation, productivity, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 24-41.
    10. Sina T. Ates & Felipe E. Saffie, 2021. "Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 304-356, July.
    11. Queralto, Albert, 2020. "A model of slow recoveries from financial crises," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 1-25.
    12. Pablo A. Guerron‐Quintana & Ryo Jinnai, 2019. "Financial frictions, trends, and the great recession," Quantitative Economics, Econometric Society, vol. 10(2), pages 735-773, May.
    13. Pinchetti, Marco, 2020. "What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model," MPRA Paper 98316, University Library of Munich, Germany.
    14. Diego Anzoategui & Diego Comin & Mark Gertler & Joseba Martinez, 2019. "Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 67-110, July.
    15. Keiichiro Kobayashi & Daichi Shirai, 2017. "Debt-Ridden Borrowers and Economic Slowdown," CIGS Working Paper Series 17-002E, The Canon Institute for Global Studies.
    16. Kaihatsu, Sohei & Kurozumi, Takushi, 2014. "What caused Japan’s Great Stagnation in the 1990s? Evidence from an estimated DSGE model," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 217-235.

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    Keywords

    Liquidity; Economic Growth;

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