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Why did the Great Recession lead to such a slow recovery? I build a model where heterogeneous firms invest in physical and intangible capital, and can default on their debt. In case of default, intangible assets are harder to seize by creditors. Hence, intangible capital faces higher financing costs. This differential is exacerbated in a financial crisis, when default is more likely and aggregate risk bears a higher premium. The resulting fall in intangible investment amplifies the crisis, and gradual intangible spillovers to other firms contribute to its persistence. Using panel data on Spanish manufacturing firms, I estimate the model matching firm-level moments regarding intangibles and financing. The model captures the extent and components of the Great Recession in Spanish manufacturing, whereas a standard model without endogenous intangible investment would miss more than half of the GDP fall. A policy of transfers conditional on firm age could speed up the recovery, as young firms tend to be more financially constrained, particularly regarding intangible investment. Conditioning transfers on firm size or subsidizing credit (as in current E.U. policy) appears to be less effective.

Financial crises. --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Financial crises --- E-books --- Investments: General --- Investments: Stocks --- Macroeconomics --- Industries: Manufacturing --- Investment --- Capital --- Intangible Capital --- Capacity --- Financial Crises --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Labor Economics: General --- Industry Studies: Manufacturing: General --- Investment & securities --- Labour --- income economics --- Manufacturing industries --- Economic & financial crises & disasters --- Intangible capital --- Depreciation --- Stocks --- Labor --- Manufacturing --- National accounts --- Financial institutions --- Global financial crisis of 2008-2009 --- Saving and investment --- Labor economics --- Global Financial Crisis, 2008-2009 --- Spain --- Income economics

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The recovery of private investment in Italy has lagged its euro area peers over the past decade. This paper examines the role of elevated labor costs in hindering the recovery. Specifically, labor costs rose faster than labor productivity prior to the global financial crisis and have remained high since, weighing on firms’ profits, capital returns, and thus capacity to invest. Empirical analysis provides evidence for the impact of wages on investment at the sectoral and firm levels. Sectoral wage growth seems unrelated to sectoral productivity growth, but is negatively associated with investment. Firm-level data permit a better identification—by exploiting the interaction between sectoral wage growth (exogenous to the firm) and the lagged labor share of the firm. A 1 percent increase in real wages is estimated to cause a 1/3 percent fall in fixed capital. Profits absorb only ½ of the cost increase, pointing to the role of liquidity constraints. These results highlight the need for labor market reform to reinvigorate investment, and thus labor productivity and job creation.

Italy --- Labor --- Wage Level and Structure --- Wage Differentials --- Payout Policy --- Capital Budgeting --- Fixed Investment and Inventory Studies --- Wages, Compensation, and Labor Costs: General --- Wages, Compensation, and Labor Costs: Public Policy --- Labour --- income economics --- Labor costs --- Wages --- Labor share --- Wage adjustments --- Minimum wages --- Minimum wage --- Income economics

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Does inflation help improve public finances? This paper documents the dynamic responses of fiscal variables to an inflation shock, using both quarterly and annual panel data for a broad set of economies. Inflation shocks are estimated to improve fiscal balances temporarily, as nominal revenues track inflation closely, while nominal primary expenditures take longer to catch up. Inflation spikes also lead to a persistent reduction in debt to GDP ratios, both due to the primary balance improvement and the nominal GDP denominator channel. However, debt only falls with inflation surprises—rises in inflation expectations do not improve debt dynamics, suggesting limits to debt debasement strategies. The results are robust to using various inflation measures and instrumental variables.

Commodity Markets --- Commodity prices --- Currency crises --- Currency --- Deflation --- Economic & financial crises & disasters --- Economics of specific sectors --- Economics --- Economics: General --- Exchange rate arrangements --- Fiscal Policy --- Fiscal policy --- Fiscal stance --- Foreign Exchange --- Foreign exchange --- Inflation --- Informal sector --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Macroeconomics --- National Budget, Deficit, and Debt: General --- Price Level --- Prices

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What drove the UK productivity slowdown post-GFC, and how is the post-Covid recovery expected to differ? This paper traces the sources of TFP growth in the UK over the last two decades through the lens of a structural model of innovation, using registry data on the universe of firms. The dominant innovation source in the pre-GFC decade were improvements by incumbent firms on their own products, whereas creation of new varieties by entrants took a leading role post-GFC. In the Covid recovery, survey data suggests that creative destruction (i.e., innovation replacing other firms’ products) is expected to gain importance. This emphasizes the need for growth policies that facilitate labor and capital reallocation across firms, in addition to R&D support.

Macroeconomics --- Economics: General --- Labor --- Production and Operations Management --- Diseases: Contagious --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Economic Growth and Aggregate Productivity: General --- Economywide Country Studies: Europe --- Labor Demand --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Macroeconomics: Production --- Labor Economics: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Labour --- income economics --- Infectious & contagious diseases --- Total factor productivity --- Job creation --- Productivity --- Job destruction --- Currency crises --- Informal sector --- Economics --- Industrial productivity --- Economic theory --- Labor market --- Labor economics