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Financial Frictions, Trends, and the Great Recession

Pablo Guerron and Ryo Jinnai ()

No HIAS-E-14, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: We study the causes behind the shift in the U.S. economy's trend following the Great Recession. To this end, we propose a model featuring endogenous productivity á la Romer and a financial friction á 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.

Pages: 40 p.
Date: 2015-10-05
New Economics Papers: this item is included in nep-mac
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http://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27579/070_hiasDP15-14.pdf

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Journal Article: Financial frictions, trends, and the great recession (2019) Downloads
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