Investment Hangover and the Great Recession

Matthew Rognlie, Andrei Shleifer and Alp Simsek

Working Paper from Harvard University OpenScholar

Abstract: We present a model of investment hangover motivated by the Great Recession. Over-building of durable capital such as housing requires a reallocation of productive resources to other sectors, which is facilitated by a reduction in the interest rate. If monetary policy is constrained, overbuilding induces a demand-driven recession with limited reallocation and low output. Investment in other capital initially declines due to low demand, but later booms and induces an asymmetric recovery in which the overbuilt sector is left behind. Welfare can be improved by ex-post policies that stimulate investment (including in overbuiltcapital), and ex-ante policies that restrict investment.

Date: 2014-09
New Economics Papers: this item is included in nep-mac and nep-opm
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Citations: View citations in EconPapers (11)

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http://scholar.harvard.edu/shleifer/node/203866

Related works:
Journal Article: Investment Hangover and the Great Recession (2018)
Working Paper: Investment Hangover and the Great Recession (2015)
Working Paper: Investment Hangover and the Great Recession (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:qsh:wpaper:203866

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