Understanding the Great Recession / Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt.

Format:

Book

Author/Creator:

Christiano, Lawrence J.

Contributor:

National Bureau of Economic Research.

Eichenbaum, Martin S.

Trabandt, Mathias.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20040.

NBER working paper series no. w20040

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to financial frictions interacting with the zero lower bound. We reach this conclusion looking through the lens of a New Keynesian model in which firms face moderate degrees of price rigidities and no nominal rigidities in the wage setting process. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as inflation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small size of the drop in inflation that occurred during the Great Recession.

Notes:

Print version record

April 2014.