The Cost of Recessions Revisited: A Reverse-Liquidationist View

Ricardo Caballero () and Mohamad Hammour

No 2331, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The observation that liquidations are concentrated in recessions has long been the subject of controversy. One view holds that liquidations are beneficial in that they result in increased restructuring. Another view holds that liquidations are privately inefficient and essentially wasteful. This paper proposes an alternative perspective. Based on a combination of theory with empirical evidence on gross job flows and on financial and labour market rents, we find that, cumulatively, recessions result in reduced restructuring, and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins.

Keywords: Creative Destruction; Financial constraints; job flows; Liquidations; Recessions; Rents; Restructuring; Unemployment (search for similar items in EconPapers)
JEL-codes: E20 E30 G30 (search for similar items in EconPapers)
Date: 1999-12
References: Add references at CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: The Cost of Recessions Revisited: A Reverse-Liquidationist View (2005)
Working Paper: The Cost of Recessions Revisited: A Reverse-Liquidationist View (2001)
Working Paper: The Cost of Recessions Revisited: A Reverse-Liquidationist View (1999)
Working Paper: The Cost of Recessions Revisited: A Reverse-Liquidationist View (1999)
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