The effect of the financial crisis on TFP growth: a general equilibrium approach

Stephen Millard and Anamaria Nicolae (anamaria.nicolae@durham.ac.uk)
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Anamaria Nicolae: Durham University Business School

No 502, Bank of England working papers from Bank of England

Abstract: In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.

Keywords: Endogenous growth; Research and development; Innovation (search for similar items in EconPapers)
JEL-codes: O40 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-06-27
New Economics Papers: this item is included in nep-cse, nep-fdg, nep-gro and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0502

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