{
  "title": "The Financing of Ideas and the Great Deviation",
  "publication": "IMF Working Papers, July 31, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031",
  "overlayPath": "/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/index.md",
  "summary": "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.",
  "sections": [
    {
      "heading": "Summary of the paper",
      "content": "- Research question: Why did the Great Recession lead to such a slow recovery?\n- Core mechanism: Heterogeneous firms invest in physical and intangible capital and can default on their debt; intangible assets are harder to seize by creditors in default, leading to higher financing costs for intangible capital.\n- Crisis amplification: In a financial crisis, default is more likely and aggregate risk bears a higher premium, exacerbating the financing cost differential and causing a fall in intangible investment that amplifies the crisis.\n- Persistence channel: Gradual intangible spillovers to other firms contribute to the persistence of the downturn.\n- Empirical focus: Panel data on Spanish manufacturing firms are used to estimate the model matching firm-level moments regarding intangibles and financing.\n- Comparative result: A standard model without endogenous intangible investment would miss more than half of the GDP fall observed in Spanish manufacturing during the Great Recession."
    },
    {
      "heading": "Model and mechanisms",
      "content": "- Firm heterogeneity:\n  - Firms invest in physical and intangible capital.\n  - Firms can default on debt; in default intangible assets are harder to seize.\n- Financing cost differential:\n  - Intangible capital faces higher financing costs relative to physical capital.\n  - The differential increases during financial crises due to elevated default risk and higher aggregate risk premia.\n- Amplification and persistence:\n  - Fall in intangible investment amplifies the initial shock.\n  - Slow spillovers of intangible capital across firms prolong the recovery."
    },
    {
      "heading": "Empirical estimation and validation",
      "content": "- Data: Panel data on Spanish manufacturing firms (details in the working paper).\n- Estimation objective: Match firm-level moments related to intangibles and financing.\n- Fit: The estimated model captures the extent and components of the Great Recession in Spanish manufacturing."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Targeted transfers:\n  - A policy of transfers conditional on firm age could speed up the recovery.\n  - Rationale: Young firms tend to be more financially constrained, particularly with respect to intangible investment.\n- Less effective alternatives:\n  - Conditioning transfers on firm size appears to be less effective.\n  - Subsidizing credit (as in current E.U. policy) appears to be less effective.\n\n---\n\n Content in this bundle\n\n- The Financing of Ideas and the Great Deviation, WP/17/176, July 2017\n  - The Financing of Ideas and the Great Deviation, WP/17/176, July 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - The Financing of Ideas and the Great Deviation, WP/17/176, July 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/bundle-manifest.json)",
    "Authors: Daniel Garcia-Macia",
    "Published: July 31, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484311134.001",
    "Research question: Why did the Great Recession lead to such a slow recovery?",
    "Core mechanism: Heterogeneous firms invest in physical and intangible capital and can default on their debt; intangible assets are harder to seize by creditors in default, leading to higher financing costs for intangible capital.",
    "Crisis amplification: In a financial crisis, default is more likely and aggregate risk bears a higher premium, exacerbating the financing cost differential and causing a fall in intangible investment that amplifies the crisis.",
    "Persistence channel: Gradual intangible spillovers to other firms contribute to the persistence of the downturn.",
    "Empirical focus: Panel data on Spanish manufacturing firms are used to estimate the model matching firm-level moments regarding intangibles and financing.",
    "Comparative result: A standard model without endogenous intangible investment would miss more than half of the GDP fall observed in Spanish manufacturing during the Great Recession.",
    "Firm heterogeneity:",
    "Financing cost differential:",
    "Amplification and persistence:",
    "Data: Panel data on Spanish manufacturing firms (details in the working paper).",
    "Estimation objective: Match firm-level moments related to intangibles and financing.",
    "Fit: The estimated model captures the extent and components of the Great Recession in Spanish manufacturing.",
    "Targeted transfers:",
    "Less effective alternatives:",
    "**The Financing of Ideas and the Great Deviation, WP/17/176, July 2017**"
  ],
  "related": [
    {
      "title": "The Financing of Ideas and the Great Deviation, WP/17/176, July 2017",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2017/wp17176.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2017/wp17176.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2017/wp17176.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/index.md",
    "json": "/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/index.json",
    "bundleManifest": "/en/publications/wp/issues/2017/07/31/the-financing-of-ideas-and-the-great-deviation-45031/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-18T12:01:46.824Z"
}