Growth, Slowdowns, and Recoveries
44 Pages Posted: 8 Dec 2014 Last revised: 11 Dec 2017
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Growth, Slowdowns, and Recoveries
Growth, Slowdowns, and Recoveries
Date Written: December 2014
Abstract
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. During the 2008 recession, technology utilization dropped precipitously, while R&D investment and long-term TFP growth were less affected. The opposite occurred during the 2001 recession. Contractionary shocks to external equity and debt financing are important for explaining the dynamics of the 2001 and 2008 recessions, respectively. Equity financing shocks are more important for explaining R&D investment while debt financing shocks are more important for physical investment.
Keywords: Bayesian methods, business cycles, DSGE model, endogenous growth, technology diffusion
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