Macroeconomics of Persistent Slumps
Chapter Chapter 27 in Handbook of Macroeconomics, 2016, vol. 2, pp 2131-2181 from Elsevier
In modern economies, sharp increases in unemployment from major adverse shocks result in long periods of abnormal unemployment and low output. This chapter investigates the processes that account for these persistent slumps. The data are from the economy of the United States, and the discussion emphasizes the financial crisis of 2008 and the ensuing slump. The framework starts by discerning driving forces set in motion by the initial shock. These are higher discounts applied by decision makers (possibly related to a loss of confidence), withdrawal of potential workers from the labor market, diminished productivity growth, higher markups in product markets, and spending declines resulting from tighter lending standards at financial institutions. The next step is to study how driving forces influence general equilibrium, both at the time of the initial shock and later as its effects, persist. Some of the effects propagate the effects of the shockâ€”they contribute to poor performance even after the driving force itself has subsided. Depletion of the capital stock is the most important of these propagation mechanisms. I use a medium-frequency dynamic equilibrium model to gain some notions of the magnitudes of responses and propagation.
Keywords: Financial crisis; Great recession; Slump; Unemployment; Labor-force participation; Stagnation; Sources of economic fluctuations; Economic driving forces; Economic shocks; Confidence; Propagation; E24; E32; G12 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:macchp:v2-2131
Access Statistics for this chapter
More chapters in Handbook of Macroeconomics from Elsevier
Series data maintained by Dana Niculescu ().