Understanding Persistent Stagnation

The Tail that Wags the Economy: Beliefs and Persistent Stagnation

The Great Recession was a deep downturn with long-lasting e ects on credit markets, labor markets and output. While narratives about what caused the recession abound, the persistence of GDP below its pre-crisis trend is puzzling. We propose a simple persistence mechanism that can be easily quanti ed and combined with existing models, even complex ones. Our solution rests on the premise that no ...

Understanding and Reducing Persistent Poverty in Africa

The Tail that Wags the Economy: Belief-Driven Business Cycles and Persistent Stagnation∗

In the wake of the “great recession,”many economists explored new sources of business cycle fluctuations, such as news, sentiment or uncertainty shocks. But these theories have diffi culty explaining why post-recession output would remain below trend long after many commonly used measures of uncertainty recovered to their pre-crisis levels. We propose a business cycle model where new informatio...

Intangibles, Inequality and Stagnation

We examine how aggregate output and income distribution interact with accumulation of intangible capital over time and across individuals. We consider an overlapping generations economy in which managerial skill (intangible capital) is essential for production, and it is acquired by young workers through on-the-job training by old managers. We show that, when young trainees are not committed to...

Globalization, Divergence and Stagnation∗

In a world where poor countries provide weak protection for intellectual property rights, market integration will systematically shift technical change in favor of rich nations. For this reason, free trade can increase international income differences. At the same time, integration with countries where intellectual property rights are weakly protected can have a large adverse effect on the worl...