Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284199 
Year of Publication: 
2023
Series/Report no.: 
School of Economics Discussion Papers No. 2303
Publisher: 
University of Kent, School of Economics, Canterbury
Abstract: 
We develop a model where temporary non-technology shocks can lead to permanent changes in the rate of growth of total factor productivity (TFP). The key ingredient of the model is a matching processes between basic researchers, product developers, and the stock of knowledge of the economy. In this context, search externalities generate vicious and virtuous cycles in R&D. The model has a unique equilibrium path but multiple balanced growth paths (BGPs) with different growth rates. After a deep or long-lived shock, the economy can transit between these BGPs, generating "super-hysteresis" in TFP. We calibrate the model in the context of the Japanese growth slowdown and show that, quantitatively, it can explain well the TFP growth decline after the financial crisis in the 1990s. The simultaneous occurrence of demographic shocks and a persistent but temporary financial crisis gave rise to a "wretched coincidence" resulting in the growth slowdown.
Subjects: 
Growth slowdowns
permanent effects of recessions
research and development
super-hysteresis
JEL: 
O40
O49
E32
Document Type: 
Working Paper

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