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The Tail that Wags the Economy: Beliefs and Persistent Stagnation / Julian Kozlowski, Laura Veldkamp, Venky Venkateswaran.
- Format:
- Book
- Author/Creator:
- Kozlowski, Julian.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w21719.
- NBER working paper series no. w21719
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Tail that Wags the Economy
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2015.
- Summary:
- The Great Recession was a deep downturn with long-lasting effects on credit, employment and output. While narratives about its causes abound, the persistence of GDP below pre-crisis trends remains puzzling. We propose a simple persistence mechanism that can be quantfied and combined with existing models. Our key premise is that agents don't know the true distribution of shocks, but use data to estimate it non-parametrically. Then, transitory events, especially extreme ones, generate persistent changes in beliefs and macro outcomes. Embedding this mechanism in a neoclassical model, we find that it endogenously generates persistent drops in economic activity after tail events.
- Notes:
- Print version record
- November 2015.
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