UNSECURED CREDIT, PRODUCT VARIETY, AND UNEMPLOYMENT DYNAMICS

2020 ◽  
pp. 1-37
Author(s):  
Mario Rafael Silva
Keyword(s):  
Great Recession ◽  
Product Variety ◽  
Free Entry ◽  
Financial Shocks ◽  
Productivity Shocks ◽  
The Great Recession ◽  
Borrowing Constraint ◽  
Short Run ◽  
Prime Determinant ◽  
Revolving Credit

Revolving credit is the prime determinant of short-run household liquidity and comoves positively with product variety and negatively with unemployment. I develop a theory of feedback between revolving credit and product development and examine its ability to explain labor market volatility. Extending the Mortensen–Pissarides model with an endogenous borrowing constraint and free entry of monopolistically competitive firms reproduces stylized facts in the data and amplifies both productivity and financial shocks through mutual causality. Higher debt limits encourage firm entry and raise product variety (the entry channel), and greater variety makes default more costly and thereby raises the equilibrium debt level (the consumption value channel). Though productivity shocks are sufficient to generate higher volatility, financial shocks are essential in approximating the time series patterns of unemployment, vacancies, and revolving credit in the data, and reproduce the rise in unemployment during the Great Recession.

scholarly journals Financial shocks and inflation dynamics

2021 ◽  
pp. 1-29
Author(s):  
Angela Abbate ◽  
Sandra Eickmeier ◽  
Esteban Prieto
Keyword(s):  
Financial Crisis ◽  
Great Recession ◽  
Policy Implication ◽  
Vector Autoregressive Model ◽  
Financial Shocks ◽  
Trade Off ◽  
Vector Autoregressive ◽  
The Great Recession ◽  
Short Run ◽  
Dual Mandate

Abstract We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the “missing disinflation” during the Great Recession. We apply a Bayesian vector autoregressive model to US data and identify financial shocks through a combination of narrative and short-run sign restrictions. Our main finding is that contractionary financial shocks temporarily increase inflation. This result withstands a large battery of robustness checks. Negative financial shocks help therefore to explain why inflation did not drop more sharply in the aftermath of the financial crisis. Our analysis suggests that higher borrowing costs after negative financial shocks can account for the modest decrease in inflation after the financial crisis. A policy implication is that financial shocks act as supply-type shocks, moving output and inflation in opposite directions, thereby worsening the trade-off for a central bank with a dual mandate.

scholarly journals Money and credit during normal times and house price booms: evidence from time-frequency analysis

Empirica ◽  
2019 ◽  
Vol 47 (4) ◽  
pp. 835-861
Author(s):  
Maciej Ryczkowski
Keyword(s):  
Great Recession ◽  
House Prices ◽  
House Price ◽  
Industrialized Countries ◽  
Time Frequency ◽  
The Great Recession ◽  
Time Period ◽  
Price Boom ◽  
The Us ◽  
Short Run

Abstract I analyse the link between money and credit for twelve industrialized countries in the time period from 1970 to 2016. The euro area and Commonwealth Countries have rather strong co-movements between money and credit at longer frequencies. Denmark and Switzerland show weak and episodic effects. Scandinavian countries and the US are somewhere in between. I find strong and significant longer run co-movements especially around booming house prices for all of the sample countries. The analysis suggests the expansionary policy that cleans up after the burst of a bubble may exacerbate the risk of a new house price boom. The interrelation is hidden in the short run, because the co-movements are then rarely statistically significant. According to the wavelet evidence, developments of money and credit since the Great Recession or their decoupling in Japan suggest that it is more appropriate to examine the two variables separately in some circumstances.

Constrained Credit

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Interest Rates ◽  
Great Recession ◽  
Borrowing Constraints ◽  
Monetary Policies ◽  
The Great Recession ◽  
Credit Creation ◽  
Advanced Economies ◽  
Borrowing Constraint ◽  
Depth Analysis ◽  
Money Creation

Chapter 4 considers economies with borrowing constraints. This assumption is motivated by the observation that monetary expansions after the Great Recession did not entail inflation in the expected manner. At the same time, nominal and real interest rates tended to decline in many advanced economies. The text offers an in-depth analysis of credit crunches, liquidity traps, and interest rates at the zero lower bound and demonstrates that borrowing constraints help reconcile theory and evidence. According to the key insight, a binding borrowing constraint detaches money creation from credit creation. In this case, inflation ceases to be a monetary phenomenon, as in standard models, but becomes a credit phenomenon. This finding explains why expansionary monetary policies failed to produce inflation since the Great Recession.

scholarly journals The Weak Job Recovery in a Macro Model of Search and Recruiting Intensity

2020 ◽  
Vol 12 (1) ◽  
pp. 310-343
Author(s):  
Sylvain Leduc ◽  
Zheng Liu
Keyword(s):  
Great Recession ◽  
Discount Factor ◽  
Search Model ◽  
Free Entry ◽  
Filling Rate ◽  
Aggregate Shocks ◽  
Macro Model ◽  
The Great Recession ◽  
Cyclical Fluctuations ◽  
Labor Search

We show that cyclical fluctuations in search and recruiting intensity are quantitatively important for explaining the weak job recovery from the Great Recession. We demonstrate this result using an estimated labor search model that features endogenous search and recruiting intensity. Since the textbook model with free entry implies constant recruiting intensity, we introduce a cost of vacancy creation, so that firms respond to aggregate shocks by adjusting both vacancies and recruiting intensity. Fluctuations in search and recruiting intensity driven by shocks to productivity and the discount factor help bridge the gap between the actual and model-predicted job-filling rate. (JEL E24, E32, J41, J63, J64)

scholarly journals Forecasting the Recovery from the Great Recession: Is This Time Different?

2013 ◽  
Vol 103 (3) ◽  
pp. 147-152 ◽  
Author(s):  
Kathryn M. E Dominguez ◽  
Matthew D Shapiro
Keyword(s):  
Great Recession ◽  
The Political ◽  
Slow Recovery ◽  
Financial Shocks ◽  
Forecast Revisions ◽  
The Great Recession ◽  
News Reports ◽  
Us Economy ◽  
The Us ◽  
Fiscal Shocks

This paper asks whether the slow recovery of the US economy from the trough of the Great Recession was anticipated, and identifies some of the factors that contributed to surprises in the course of the recovery. We construct a narrative using news reports and government announcements to identify policy and financial shocks. We then compare forecasts and forecast revisions of GDP to the narrative. Successive financial and fiscal shocks emanating from Europe, together with self-inflicted wounds from the political stalemate over the US fiscal situation, help explain the slowing of the pace of an already slow recovery.

Was Keynesian economics ever dead? If so, has it been resurrected?

2020 ◽  
Vol 8 (1) ◽  
pp. 46-60
Author(s):  
Steven M. Fazzari
Keyword(s):  
Interest Rates ◽  
Great Recession ◽  
Supply Side ◽  
Demand Side ◽  
Short Term ◽  
Natural Rate ◽  
The Great Recession ◽  
Keynesian Economics ◽  
Natural Rate Of Interest ◽  
Short Run

This article reflects on rising interest in Keynesian macroeconomics in the aftermath of the Great Recession. I identify aspects of Keynesian thinking that never were completely banished from the mainstream as well as threads of Keynesian macroeconomics that have become more influential since the crisis. However, the way most mainstream analysis continues to invoke the zero lower bound for short-term interest rates and the concept of the ‘natural’ rate of interest implies that any Keynesian resurrection outside of heterodoxy remains incomplete. The future may bring broader recognition of how demand leads economic growth and of ways in which the demand side leads the supply side beyond the typical textbook ‘short run.’

Association of negative financial shocks during the Great Recession with depressive symptoms and substance use in the USA: the CARDIA study

2020 ◽  
pp. jech-2020-213917 ◽  
Author(s):  
Samuel Longworth Swift ◽  
Tali Elfassy ◽  
Zinzi Bailey ◽  
Hermes Florez ◽  
Daniel J Feaster ◽  
...  
Keyword(s):  
Depressive Symptoms ◽  
Alcohol Use ◽  
Drug Use ◽  
Great Recession ◽  
Fixed Effects ◽  
Household Wealth ◽  
Future Research ◽  
Financial Shocks ◽  
The Great Recession ◽  
The Usa

BackgroundThe Great Recession of 2008 was marked by large increases in unemployment and decreases in the household wealth of many Americans. In the 21st century, there have also been increases in depressive symptoms, alcohol use and drug use among some groups in the USA. The objective of this analysis is to evaluate the influence of negative financial shocks incurred during the Great Recession on depressive symptoms, alcohol and drug use.MethodsWe employed a quasi-experimental fixed-effects design, using data from adults enrolled in the Coronary Artery Risk Development in Young Adults (CARDIA) study. Our financial shock predictors were within-person change in employment status, income and debt to asset ratio between 2005 and 2010. Our outcomes were within-person change in depressive symptoms score, alcohol use and past 30-day drug use.ResultsIn adjusted models, we found that becoming unemployed and experiencing a drop in income and were associated with an increase in depressive symptoms. Incurring more debts than assets was also associated with an increase in depressive symptoms and a slight decrease in daily alcohol consumption (mL).ConclusionOur findings suggest that multiple types of financial shocks incurred during an economic recession negatively influence depressive symptoms among black and white adults in the USA, and highlight the need for future research on how economic recessions are associated with health.

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