Financial frictions, trends, and the great recession

Pablo Guerron and Ryo Jinnai (ryo.jinnai@r.hit-u.ac.jp)

Quantitative Economics, 2019, vol. 10, issue 2, 735-773

Abstract: We study the causes behind the shift in the level of U.S. GDP following the Great Recession. To this end, we propose a model featuring endogenous productivity à la Romer and a financial friction à 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.

Date: 2019
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Citations: View citations in EconPapers (39)

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https://doi.org/10.3982/QE702

Related works:
Working Paper: Financial Frictions, Trends, and the Great Recession (2015)
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