PhD Graduate in Economics, Department of Economics, LSE
Contact information
Email: a.j.clymo@uva.nl
Phone number: +31 (0)6 2951 8637
Address: Department of Economics || London School of Economics and Political Science || Houghton Street || London WC2A 2AE
Research interests
Primary Fields: Macroeconomics || Finance || Optimal Policy || Heterogeneous Agents Modelling
Job Market Paper
Heterogeneous Firms, Wages, and the Effects of Financial Crises
Abstract
In this paper, I show that how a financial crisis manifests in the real economy in standard heterogeneous firm models depends crucially on assumptions on wage adjustment, and use this result to explain the divergent experiences of the US and UK during the recent financial crisis. The Great Recession manifested itself as a decline in hours and employment in the US, but a Total Factor Productivity decline in the UK. I argue that the fact that wages fell further during the crisis in the UK may provide an explanation. Theoretically, while a decline in wages protects the labour market, I show that, in the presence of financial frictions, it also causes a fall in TFP by misallocating resources across firms. Financially unconstrained firms are able to take greater advantage of a decline in wages than constrained firms, leading to a relative reallocation of resources towards the unconstrained, which I show must always reduce TFP. On the other hand, if wages are fully rigid, I show that a financial crisis will have no effect on TFP. A quantitative version of the model is able to explain the greater fall in hours during the crisis in the US, the lack of a significant fall in TFP in the US, and 1/3 of the UK’s TFP decline, or “productivity puzzle”.
Publications and Additional Papers
“Fiscal Policy with Limited-Time Commitment”, with Andrea Lanteri
“Growth and Business Cycle Effects of Future Financial Crises”
“Labour Market Matching, Stock Prices & the Financial Accelerator”