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Long and short-term effects of the financial crisis on labour productivity, capital and output

Oulton, Nicholas and Sebastiá-Barriel, María (2013) Long and short-term effects of the financial crisis on labour productivity, capital and output. Bank of England working papers, 470. Bank of England, London, UK.

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Abstract

The behaviour of labour productivity in the United Kingdom since the onset of the recessionin early 2008 constitutes a puzzle. Over four years after the recession began labourproductivity is still below its previous peak level. This paper considers the hypothesis thateconomic capacity can be permanently damaged by financial crises. A model which allows afinancial crisis to have both a short-run effect on the growth rate of labour productivity and along-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The mainfinding is that a banking crisis as defined by Reinhart and Rogoff on average reduces theshort-run growth rate of labour productivity by between 0.6 and 0.7 per year and thelong-run level by between 0.84 and 1.1 (depending on the method of estimation), foreach year that the crisis lasts. A banking crisis also reduces the long-run level of capital perworker by an average of about 1. The effect on GDP per capita is about double the effecton GDP per worker since there is a long-run, negative effect on the employment ratio.

Item Type: Monograph (Working Paper)
Official URL: http://www.bankofengland.co.uk/publications/Pages/...
Additional Information: © 2013 Bank of England
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 470
Date Deposited: 21 Mar 2013 16:18
URL: http://eprints.lse.ac.uk/49353/

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