Growth, slowdowns, and recoveries

Authors

Bianchi, F; Kung, H; Morales, G

Abstract

© 2018 Elsevier B.V. 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

Bianchi, F., H. Kung, and G. Morales. “Growth, slowdowns, and recoveries.” Journal of Monetary Economics, January 1, 2019. https://doi.org/10.1016/j.jmoneco.2018.07.001.