Growth, Slowdowns, and Recoveries

Wednesday, April 3, 2019
Francesco Bianchia, Howard Kung, Gonzalo Moralesc


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.


Francesco Bianchia, Howard Kung, and Gonzalo Moralesc. "Growth, Slowdowns,and Recoveries." Journal of Monetary Economics. Volume 101, January 2019, p. 47-63.

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