Financial Shocks to Banks, R&D Investment, and Recessions

Ryoji Ohdoi

MPRA Paper from University Library of Munich, Germany

Abstract: In some classes of macroeconomic models with financial frictions, an adverse financial shock successfully explains a drop in GDP, but simultaneously induces a stock price boom. The latter theoretical result is not consistent with data from actual financial crises. This study develops a simple macroeconomic model featuring a banking sector, financial frictions, and R&D-led endogenous growth to examine the impacts of an adverse financial shock to banks on firms' R&D investments and equity prices. Both the analytical and numerical investigations show that a shock that hinders the banks' financial intermediary function can be a key to generating both a prolonged recession and a drop in the firms' equity prices.

Keywords: Banks; Endogenous growth; Financial frictions; Financial shocks; Quality-ladder growth model (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 O31 O41 (search for similar items in EconPapers)
Date: 2020-07-22
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-fdg and nep-mac
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https://mpra.ub.uni-muenchen.de/101993/1/MPRA_paper_101993.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/106797/1/MPRA_paper_106797.pdf revised version (application/pdf)

Related works:
Journal Article: Financial shocks to banks, R&D investment, and recessions (2024)
Working Paper: Financial shocks to banks, R&D investment, and recessions (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101993

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