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Financial Frictions, Trends, and the Great Recession

Listed author(s):
  • GUERRON-QUINTANA, Pablo A.
  • JINNAI, Ryo

We study the causes behind the shift in the U.S. economy's trend following the Great Recession. To this end, we propose a model featuring endogenous productivity á la Romer and a financial friction á la Kiyotaki-Moore. Adverse financial disturbances during the recession and the lack of strong tailwinds post crisis resulted in a severe contraction and the downward shift in the economy's trend. Had financial conditions remained stable during the crisis, the economy would have grown at its average growth rate. From a historical perspective, the Great Recession was unique because of the size and persistence of adverse shocks, and the lackluster performance of favorable shocks since 2010.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27618/1/070_hiasDP-E-14.pdf
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Paper provided by Hitotsubashi Institute for Advanced Study, Hitotsubashi University in its series Discussion paper series with number HIAS-E-14.

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Length: 40 p.
Date of creation: 05 Oct 2015
Handle: RePEc:hit:hiasdp:hias-e-14
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  1. Frank Schorfheide & Dongho Song & Amir Yaron, 2013. "Identifying long-run risks: a bayesian mixed-frequency approach," Working Papers 13-39, Federal Reserve Bank of Philadelphia.
  2. Sînâ T. Ateş & Felipe E. Saffie, 2014. "Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection," PIER Working Paper Archive 14-043, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Pablo A. Guerron-Quintana & Ryo Jinnai, "undated". "Liquidity, Trends and the Great Recession," Working Papers e66, Tokyo Center for Economic Research.
  4. Ajello, Andrea, 2010. "Financial intermediation, investment dynamics and business cycle fluctuations," MPRA Paper 32447, University Library of Munich, Germany, revised Mar 2011.
  5. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-09 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 81-156.
  6. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
  7. Ryo Jinnai, 2015. "Innovation, Product Cycle, and Asset Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 484-504, July.
  8. Ríos-Rull, José-Víctor & Santaeulàlia-Llopis, Raül, 2010. "Redistributive shocks and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 931-948, November.
  9. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, July.
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