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Accounting for the Slow Recovery from the Great Recession: The Role of Credit Constraints

Author

Listed:
  • Francisco Buera

    (Washington University at St. Louis)

  • Juan Pablo Nicolini

    (Minneapolis Fed)

Abstract

We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces several features of the financial crisis that unraveled in 2007 in the United States. As a reaction to the crisis, the US government increased substantially the net supply of its liabilities (money and bonds, which at the zero bound are perfect substitutes). A calibrated model that incorporates both the credit crunch and the policy response of the government can account for a substantial fraction of the slow recovery in investment and output, as observed since the great recessio

Suggested Citation

  • Francisco Buera & Juan Pablo Nicolini, 2019. "Accounting for the Slow Recovery from the Great Recession: The Role of Credit Constraints," 2019 Meeting Papers 492, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:492
    as

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    References listed on IDEAS

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