Technical Report Financial Frictions, Trends, and the Great Recession

GUERRON-QUINTANA, Pablo A.  ,  JINNAI, Ryo

2015-10-05 , Hitotsubashi Institute for Advanced Study, Hitotsubashi University
Description
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.
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http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27618/1/070_hiasDP-E-14.pdf

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