Demand, Growth, and Deleveraging

Brian Greaney and Conor Walsh
Additional contact information
Conor Walsh: Columbia University

Review of Economic Dynamics, 2023, vol. 51, 795-812

Abstract: We present empirical evidence that weak household demand contributed to a reduction in firm entry in the Great Recession. Motivated by this evidence, we study the general equilibrium response of aggregate economic growth to a severe deleveraging event. To do so, we combine a standard incomplete markets model with a class of endogenous growth models. A large reduction in credit access causes the zero lower bound to bind, inducing a drop in demand via employment rationing. Decreased demand in turn lowers the return to entrepreneurship and innovation, endogenously lowering productivity. We find that a persistent recession induced by deleveraging can significantly influence growth in productivity. Our main result is a powerful feedback effect: households increase savings in response to future slow growth, exacerbate the fall in demand, and further slow the recovery. (Copyright: Elsevier)

Keywords: Deleveraging; Firm entry; Propagation; Growth (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2023.08.004
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Demand, Growth, and Deleveraging" (2023)
Working Paper: Online Appendix to "Demand, Growth, and Deleveraging" (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:21-132

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2023.08.004

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().