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Working Paper
Lliquidity, trends, and the great recession
The authors study the impact that the liquidity crunch in 2008-2009 had on the U.S. economy?s growth trend. To this end, the authors propose a model featuring endogenous productivity a la Romer and a liquidity friction a la Kiyotaki-Moore. A key finding in the authors? study is that liquidity declined around the Lehman Brothers? demise, which led to the severe contraction in the economy. This liquidity shock was a tail event. Improving conditions in financial markets were crucial in the subsequent recovery. Had conditions remained at their worst level in 2008, output would have been 20 ...