Discussion Paper Details

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Title: Growth, Slowdowns, and Recoveries

Author(s): Francesco Bianchi, Howard Kung and Gonzalo Morales

Publication Date: December 2014

Keyword(s): Bayesian methods, business cycles, endogenous growth and financial frictions

Programme Area(s): International Macroeconomics

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. 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.

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Bibliographic Reference

Bianchi, F, Kung, H and Morales, G. 2014. 'Growth, Slowdowns, and Recoveries'. London, Centre for Economic Policy Research.