publication . Preprint . Article . 2005

Financial Crises and Total Factor Productivity

Felipe Meza; Erwan Quintin;
Open Access
  • Published: 01 Jan 2005
Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Mexico and Asia. These falls are unusual in magnitude and present a difficult challenge for the standard small open economy neoclassical model. We show in the case of Mexico’s 1994-95 crisis that the model predicts that inputs and output should have fallen much more than they did. Using models with endogenous factor utilization, we find that capital utilization and labor hoarding can account for a large fraction of the TFP fall during the crisis. However, these models also predict that output should fall significantly more than in the data. Given the ...
free text keywords: Financial crises - Mexico
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