A Model of Slow Recoveries from Financial Crises

Queraltó, Albert

doi:10.17016/ifdp.2013.1097

Cited by 27 publications

(25 citation statements)

References 47 publications

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“…Our paper is closely related to the recent work of Anzoategui, Comin, Gertler, and Martinez (2019), Benigno and Fornaro (2018), Bianchi, Kung, and Morales (2019), Garcia-Macia (2015), Guerron-Quintana and Jinnai (2019), Moran and Queraltó (2018) and Queralto (2019), all of whom integrate endogenous growth into a standard business cycle framework. Among these papers, our framework is most similar to that of Benigno and Fornaro (2018), who identify the possibility of an economy entering a phase characterized by a persistent liquidity trap and low TFP growth due to pessimistic expectations.…”

Section: Related Literaturementioning

confidence: 67%

Output Hysteresis and Optimal Monetary Policy

Singh¹,

Garga²

2019

Federal Reserve Bank of Boston Research Department Working Papers

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We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon we term output hysteresis. In the model, the incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing total factor productivity growth and generating a permanent loss in output. Using a purely quadratic approximation to welfare under endogenous growth, we derive normative implications for monetary policy. Away from the zero lower bound (ZLB), optimal commitment policy sets interest rates to eliminate output hysteresis. A strict inflation targeting rule implements the optimal policy. However, when the nominal interest rate is constrained at the ZLB, strict inflation targeting is suboptimal and admits output hysteresis. A new policy rule that targets output hysteresis returns output to its pre-shock trend and approximates the welfare gains under optimal commitment policy. A central bank that is unable to commit to future policy actions suffers from hysteresis bias, as the bank's inconsistent policy does not offset past losses in potential output.

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Section: Related Literaturementioning

confidence: 67%

Output Hysteresis and Optimal Monetary Policy

Singh¹,

Garga²

2019

Federal Reserve Bank of Boston Research Department Working Papers

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“…Comin and Gertler () discussed the unconditional correlation between R&D and aggregate TFP before the most recent financial crisis. Another related study is Queralto (), who introduces Comin and Gertler ()'s framework into a small open economy model to study the South Korean economy following the 1997 crisis.…”

Section: Introductionmentioning

confidence: 99%

Financial frictions, trends, and the great recession

Guerrón‐Quintana¹,

Jinnai

2019

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We study the causes behind the shift in the level of U.S. GDP following the Great Recession. To this end, we propose a model featuring endogenous productivity à la Romer and a financial friction à la Kiyotaki-Moore. Adverse financial disturbances during the recession and the lack of strong tailwinds post-crisis resulted in a severe contraction and the downward shift in the economy's trend. Had financial conditions remained stable during the crisis, the economy would have grown at its average growth rate. From a historical perspective, the Great Recession was unique because of the size and persistence of adverse shocks, and the lackluster performance of favorable shocks since 2010. for valuable discussions and seminar participants at several institutions and conferences for comments. Ryo Jinnai gratefully acknowledges the support by JSPS KAKENHI grants (16K17080, 16H03626, and 17H00985) as well as the Hitotsubashi Institute for Advanced Study (HIAS).1 More formally, the shift in the GDP trend is detected by the flexible estimation of trends with regime shifts recently advanced by Eo and Kim (2012). We thank Yunjong Eo for helping with the estimation using their approach. 2 The forecast is built assuming that the economy will be growing at the average growth rate for the period 2009.Q2-2015.Q1.

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“…Comin and Gertler [2006] develop a model in which short-run shocks to the economy causes medium-term business cycles using a product-variety expansion type of endogenous growth framework. A similar framework is used by Queralto [2013] to study Korea's 1997 finacial crisis, by Guerron-Quintana and Jinnai [2018] to measure the cost of the U.S. Great Recession, by Gornemann…”

Section: Contribution To the Existing Literaturementioning

confidence: 99%

Productivity and Trade Dynamics in Sudden Stops

2020

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This paper studies productivity and trade dynamics during sudden stop episodes. Sudden stops of capital inflows to emerging economies are characterized by deep recessions, slow recoveries, sharp devaluations, and reversals in the trade balance. We develop a framework to capture these salient features of sudden stops. The model features endogenous productivity and trade dynamics, and endogenous sudden stops. In this environment, firm and product entry and exit into domestic and export markets play a key role in shaping the dynamic response of the economy to a sudden stop. We discipline the model using unique firm-product level data in both domestic and export markets from a census of manufacturing firms in an emerging economy. The calibrated model matches the key stylized facts of sudden stops and their aftermath. In addition, we show that the models' predictions are consistent with the dynamics of firms' product portfolios during the Chilean sudden stop of 1998.

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A Model of Slow Recoveries from Financial Crises

Cited by 27 publications

References 47 publications

Output Hysteresis and Optimal Monetary Policy

Output Hysteresis and Optimal Monetary Policy

Financial frictions, trends, and the great recession

Productivity and Trade Dynamics in Sudden Stops

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