Investment Hangover and the Great Recession

@article{Rognlie2014InvestmentHA,
  title={Investment Hangover and the Great Recession},
  author={Matthew Rognlie and Andrei Shleifer and Alp Simsek},
  journal={Financial Crises eJournal},
  year={2014}
}
We present a model of investment hangover motivated by the Great Recession. Overbuilding of durable capital such as housing requires a reallocation of productive resources to other sectors, which is facilitated by a reduction in the interest rate. When monetary policy is constrained, overbuilding induces a demand-driven recession with limited reallocation and low output. Investment in other capital initially declines due to low demand, but it later booms and induces an asymmetric recovery in… Expand
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