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Long shadows of financial shocks: an endogenous growth perspective

Marcin Bielecki ()

No 2017-22, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The Great Recession has resulted in a seemingly permanent level shift in many macroeconomic variables. This paper presents a microfounded general equilibrium model featuring frictional labor markets and financial frictions that generates procyclical R&D expenditures and replicates business cycle features of establishment dynamics. This allows demonstrating the channels through which productivity and financial shocks influence the aggregate endogenous growth rate of the economy, creating level shifts in its balanced growth path. I find that financial shocks are an important driver of the aggregate fluctuations and their influence is especially pronounced for establishment entry. Since the growth rate of the economy can in principle be affected by policy measures, I examine the macroeconomic and welfare effects of applying several subsidy schemes.

Keywords: business cycles; establishment dynamics; endogenous growth; working capital; financial shocks (search for similar items in EconPapers)
JEL-codes: E32 G01 J63 J64 O3 O40 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2017
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-gro and nep-mac
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http://www.wne.uw.edu.pl/index.php/download_file/3955/ First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2017-22

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