Financial shocks to banks, R&D investment, and recessions

Ryoji Ohdoi

No 250, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: In some classes of macroeconomic models with financial frictions, an adverse financial shock successfully explains a decrease in real activity but simultaneously induces a stock price boom. The latter theoretical result is not consistent with data from actual financial crises. This study aims to provide a theoretical explanation for both prolonged recessions and stock price declines. I develop a simple macroeconomic model featuring a banking sector, financial frictions, and R&D-based endogenous growth. Both the analytical and numerical investigations show that endogenous R&D investment and a shock hindering banks' financial intermediary function can be key to generating both a prolonged recession and a drop in firms' stock prices.

Keywords: Banks; Endogenous growth; Financial frictions; Financial shocks (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 O31 O41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2023-06, Revised 2023-08
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mac and nep-mfd
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http://192.218.163.163/RePEc/pdf/kgdp250.pdf Revised version, 2023 (application/pdf)

Related works:
Journal Article: Financial shocks to banks, R&D investment, and recessions (2024)
Working Paper: Financial Shocks to Banks, R&D Investment, and Recessions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:250

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