Financial Markets and Fluctuations in Uncertainty

Abstract

Researchers have documented that in the recent financial crisis the large decline in economic activity and credit has been accompanied by a large increase in the dispersion of growth rates across firms. We build a quantitative general equilibrium model in which financial frictions interact with increases in uncertainty at the firm level to generate a contraction in economic activity and a large increase in the dispersion of growth rates across firms. We find that our model can generate about 75 % of the decline in output of the Great Recession of 2007. A promising feature of our model is that it generates large labor wedges, a feature of the recent data on business cycles. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of The recent financial crisis has been accompanied by severe contractions in economic activity and credit as well as large increases in the cross section dispersion of firm growth rates (Bloom, Floetotto and Jaimovich 2009). Motivated by these observations we build

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 125 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.