The Effect of the Financial Crisis on TFP Growth: A General Equilibrium Approach.

Millard, S.; Nicolae, A.

Abstract

In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.

Citation

Millard, S., & Nicolae, A. The Effect of the Financial Crisis on TFP Growth: A General Equilibrium Approach

• Working Paper Type: Working Paper
• Online Publication Date: Jun 1, 2014
• Publication Date: 2014-06
• Deposit Date: Oct 3, 2016
• Public URL: https://durham-repository.worktribe.com/output/1168236
• Publisher URL: https://www.bankofengland.co.uk/working-paper/2014/the-effect-of-the-financial-crisis-on-tfp-growth-a-gernal-equilibrium-approach