scholarly journals Anticipated Banking Panics

2016 ◽  
Vol 106 (5) ◽  
pp. 554-559 ◽  
Author(s):  
Mark Gertler ◽  
Nobuhiro Kiyotaki ◽  
Andrea Prestipino
Keyword(s):  
Great Recession ◽  
Macroeconomic Model ◽  
Balance Sheets ◽  
The Great Recession ◽  
Banking Panics ◽  
Harmful Effects

We develop a macroeconomic model with banking instability. Sunspot runs can arise that are harmful to the economy. However, whether a run equilibrium exists depends on fundamentals. In contrast to earlier work, the probability of a sunspot run is the outcome of rational forecast based on fundamentals. The model captures the movement from slow to fast runs that was a feature of the Great Recession: A weakening of banks' balance sheets increases the probability of a run, leading depositors to withdraw funds from banks. These slow runs have harmful effects on the economy and set the stage for fast runs.

Economists’ Ethics in the Build-Up to the Great Recession

2014 ◽  
pp. 267-292
Author(s):  
Robert H. Wade
Keyword(s):  
Great Recession ◽  
Ethical Principles ◽  
Financial Fragility ◽  
Implicit Assumption ◽  
Conflicts Of Interests ◽  
The Great Recession ◽  
Optimal Outcomes ◽  
Epistemic Asymmetry ◽  
Harmful Effects

This chapter argues that mainstream economists – mainly American and British contributed to the build-up of the financial fragility which tipped into the Great Recession through their implicit assumption of epistemic asymmetry (hubris) and epistemic sufficiency (close-mindedness, or selective inattention to data and arguments which would upset their way of seeing things). They also contributed, secondarily, through the failure to disclose conflicts of interests, involving collusion between economists and financial organizations. Both these contributions reflect the discipline’s failure to formulate and teach ethical principles for guiding economists as they prescribe policies that may affect the welfare of millions of people and the health of the biosphere. In the absence of ethical restraints economists have too often advocated policies on the assumption that the optimal outcomes will materialize, only to find that their prescriptions bring about unanticipated, harmful effects that catch them off guard.

scholarly journals Productivity in Europe during the Great Recession: Any evidence for creative destruction?

2017 ◽  
Vol 5 (2) ◽  
pp. 82
Author(s):  
Gonzalo Paz Pardo
Keyword(s):  
Financial Crisis ◽  
Great Recession ◽  
Fixed Effects ◽  
Growth Models ◽  
Labour Force ◽  
Creative Destruction ◽  
Balance Sheets ◽  
The Great Recession ◽  
Theoretical Predictions ◽  
Endogenous Growth Models

This article analyses the effects of the financial crisis and the Great Recession on productivity in Europe by studying the process of labour force reallocation between companies. Using micro-data on company balance sheets, a fixed-effects panel estimation of the predictors of the post-crisis evolution of the number of employees for a given company is used. Identification is achieved through the use of pre-crisis values of covariates. The results are in line with the theoretical predictions derived from Schumpeterian (“creative destruction”) endogenous growth models. Pre-crisis productivity is a predictor of a higher number of employees, which means creative destruction is taking place to some extent. Companies in financially dependent sectors perform worse in the context of the financial crisis. Indebtedness has an uneven effect: positive for large companies and negative for smaller ones.

scholarly journals Firm Leverage, Consumer Demand, and Employment Losses During the Great Recession*

2016 ◽  
Vol 132 (1) ◽  
pp. 271-316 ◽  
Author(s):  
Xavier Giroud ◽  
Holger M. Mueller
Keyword(s):  
Great Recession ◽  
Consumer Demand ◽  
House Prices ◽  
Census Bureau ◽  
Demand Shocks ◽  
Balance Sheets ◽  
The Great Recession ◽  
Level Data ◽  
Target Firms ◽  
Micro Level

Abstract This article argues that firms’ balance sheets were instrumental in the transmission of consumer demand shocks during the Great Recession. Using micro-level data from the U.S. Census Bureau, we find that establishments of more highly levered firms experienced significantly larger employment losses in response to declines in local consumer demand. These results are not driven by firms being less productive, having expanded too much prior to the Great Recession, or being generally more sensitive to fluctuations in either aggregate employment or house prices. Likewise, at the county level, we find that counties with more highly levered firms experienced significantly larger declines in employment in response to local consumer demand shocks. Accordingly, firms’ balance sheets also matter for aggregate employment. Our results suggest a possible role for employment policies that target firms directly besides conventional stimulus.

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