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- Title
The Lasting Damage from the Financial Crisis to U.S. Productivity.
- Authors
Redmond, Michael; Van Zandweghe, Willem
- Abstract
The financial crisis and recession of 2007-09 left deep scars on the U.S. economy. Total factor productivity, a key source of long-run output growth, declined sharply during the crisis and has remained below its precrisis level. Tight credit conditions may have contributed to productivity's decline. During the crisis, widespread fear and uncertainty drove lenders to raise interest rates and lend more cautiously. As a result, firms faced reduced access to credit, potentially preventing them from investing in innovation. Redmond and Van Zandweghe examine the relationship between credit conditions and total factor productivity and find the financial crisis altered their usual relationship. During normal times, productivity growth fluctuates over the business cycle largely unaffected by credit conditions. But during the crisis, distressed credit markets significantly dampened productivity growth, leaving total factor productivity on a lower trajectory as the economy began to recover.
- Subjects
UNITED States; FINANCIAL crises; RECESSIONS; TWENTY-first century; UNITED States economy; INDUSTRIAL productivity; FINANCIAL market reaction
- Publication
Economic Review (01612387), 2016, Vol 101, Issue 1, p39
- ISSN
0161-2387
- Publication type
Article