Growth, Slowdowns, and Recoveries
We construct and estimate an endogenous growth model with debt and equity financing frictions to understand the relation between business cycle fluctuations and long-term growth. The presence of spillover effects from R&D imply an endogenous relation between productivity growth and the state of the economy. A large contractionary shock to equity financing in the 2001 recession led to a persistent growth slowdown that was more severe than in the 2008 recession. Equity (debt) financing shocks are more important for explaining R&D (physical) investment. Therefore, these two financing shocks affect the economy over different horizons.Citation:
Francesco Bianchia, Howard Kung, and Gonzalo Moralesc. "Growth, Slowdowns,and Recoveries." Journal of Monetary Economics. Volume 101, January 2019, p. 47-63.