EconPapers    
Economics at your fingertips  
 

Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity

Julia Thomas and Aubhik Khan ()

No 801, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: In sum, we find that an unanticipated tightening in borrowing conditions on its own can generate a large recession that is far more persistent than the financial shock itself. Because it causes long-lived disruption in the distribution of capital, and thus production, an episode of tight credit leaves behind long, anemic recoveries in total output and consumption. At the heart of these slow returns is the gradual repair of measured productivity and aggregate capital. For this reason, the recovery following a temporary financial crisis is far more gradual than that after a similarly temporary shock directly reducing aggregate TFP. A second aspect distinguishing the episode following a financial shock is the fact that household consumption spending plays no useful role in the economic recovery; instead, recovery is driven by sharp rises in the labor input that ultimately generate the rises in investment necessary to rebuild the aggregate capital stock.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2010/paper_801.pdf (application/pdf)

Related works:
Journal Article: Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity (2013) Downloads
Working Paper: Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:801

Access Statistics for this paper

More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-09-22
Handle: RePEc:red:sed010:801