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dc.contributor.authorKnowles, Matthew Paul
dc.identifier.citationKnowles , M P 2015 ' Capital deaccumulation and the large persistent effects of financial crises ' .en
dc.identifier.otherPURE: 252070463
dc.identifier.otherPURE UUID: 8a00e268-7d27-4ac9-ae92-8765650ab8cd
dc.description.abstractIn a panel of OECD and emerging economies, I find that banking crises are characterized by larger initial drops in investment than other large recessions and are followed by particularly persistent drops in output. Furthermore, the larger the drop in investment during the crisis, the more persistent the decrease in output subsequently. I present a model to account for these patterns, in which a financial shock temporarily increases the costs of external finance for investing entrepreneurs, leading to a drop in investment and a persistent slump in output and employment. Critical to the model is the distinction between different types of capital with different depreciation rates. Intangible capital and equipment have high depreciation rates, leading these stocks to drop substantially when investment falls during a financial shock. This can cause output and employment to remain low for close to a decade, through the contribution of equipment and intangibles to production and labor demand. I show that the consequences of such a financial shock correspond to several features of the US Great Recession (2008-2014), especially the large drop in equipment and intangible capital. In the model, TFP and government spending shocks do not lead to such large declines in investment or persistent output decreases, so the model is also consistent with the more transitory output drops seen after non-financial recessions, where such shocks may have been more important. ​
dc.rightsCopyright (c)2015 the authoren
dc.subjectHD28 Management. Industrial Managementen
dc.subjectHB Economic Theoryen
dc.titleCapital deaccumulation and the large persistent effects of financial crisesen
dc.typeWorking or discussion paperen
dc.contributor.institutionUniversity of St Andrews.School of Economics and Financeen

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