Paradox of thrift recessions

Zhen Huo and José-Víctor Ríos-Rull
Authors registered in the RePEc Author Service: José-Víctor Ríos-Rull

No 490, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We build a variation of the neoclassical growth model in which both wealth shocks (in the sense of wealth destruction) and financial shocks to households generate recessions. The model features three mild departures from the standard model: (1) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (2) there is a mild form of labor market frictions (Nash bargaining wage setting with Mortensen-Pissarides labor markets); (3) goods markets for nontradables require active search from households wherein increases in consumption expenditures increase measured productivity. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks.

Keywords: Productivity; Recessions (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-lam, nep-ltv, nep-mac and nep-neu
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Paradox of Thrift Recessions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:490

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