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Schlotmann, OEberhardt, F (2020). The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide. Credit and Capital Markets – Kredit und Kapital, 53(1), 17-42. https://doi.org/10.3790/ccm.53.1.17
Schlotmann, Olaf Eberhardt, FrankSchlotmann, Olaf Eberhardt, Frank (2020). "The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide" Credit and Capital Markets – Kredit und Kapital, vol. 53no. 1, 2020 pp. 17-42. https://doi.org/10.3790/ccm.53.1.17
Schlotmann, OEberhardt, F (2020). The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide. Credit and Capital Markets – Kredit und Kapital, Vol. 53 (Issue 1), pp 17-42. https://doi.org/10.3790/ccm.53.1.17

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The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide

Schlotmann, Olaf | Eberhardt, Frank

Credit and Capital Markets – Kredit und Kapital, Vol. 53 (2020), Iss. 1 : pp. 17–42

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Author Details

Prof. Dr. Olaf Schlotmann, Brunswick European Law School; Ostfalia Hochschule für angewandte Wissenschaften, Salzdahlumer Str. 46/48, 38302 Wolfenbüttel

Frank Eberhardt, Brunswick European Law School; Ostfalia Hochschule für angewandte Wissenschaften

References

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  44. Autor, D. H./Dorn, D./Hanson, G. H. (2013): The China Syndrome: Local Labor Market Effects of Import Competition in the United States, in: American Economic Review 103, 6, pp. 2121–2168.  Google Scholar
  45. Banerjee, R./Hofmann, B. (2018): The Rise of Zombie Firms. Causes and consequences. in: BIS Quarterly Review: International Banking and Financial Market Developments, pp. 67–78.  Google Scholar
  46. Borio, C. E. V. (2018): A Blind Spot in Today’s Macroeconomics? Panel Remarks on BIS-IMF-OECD Joint Conference on “Weak Productivity: The Role of Financial Factors and Policies”, Paris.  Google Scholar
  47. Borio, C. E. V./Kharroubi, E./Upper, C./Zampolli, F. (2015): Labour Reallocation and Productivity Dynamics. Financial Causes, Real Consequences. in: BIS working papers, No. 534, Bank for International Settlements Monetary and Economic Department, Basel.  Google Scholar
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  50. Caballero, R. J. /Hoshi, T./Kashyap, A. K. (2008): Zombie Lending and Depressed Restructuring in Japan. in: American Economic Review 98 (5), pp. 1943–1977.  Google Scholar
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  55. Gouveia, A. F./Osterhold, C. (2018): Fear the Walking Dead. Zombie Firms, Spillovers and Exit Barriers, in: OECD productivity working papers, No. 13, June 2018, Paris.  Google Scholar
  56. King, M. (2016): The End of Alchemy. London.  Google Scholar
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  64. Koo, R. (2014): Blance sheet recession ist he resason for “secular stagnation.” https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation.  Google Scholar
  65. Kremer, D. (2019): Drohen uns Jahrzehnte ohne Zinsen?, in: Frankfurter Allgemeine Zeitung, April 06th 2019, https://www.faz.net/aktuell/finanzen/meine-finanzen/sparen-und-geld-anlegen/nullzinszeit-drohen-uns-jahrzehnte-ohne-zinsen-16128064.html.  Google Scholar
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  77. Schumpeter, J. A. (1939): Business Cycles, New York.  Google Scholar
  78. Sinn, H.-W./Schnabl, G. (2016): Mario Draghi die Bazooka entreißen, in: Frankfurter Allgemeine Zeitung, April 16th 2016.  Google Scholar
  79. Starbatty, J./Stark, J. (2016): Schumpeter versus Keynes, in: Frankfurter Allgemeine Zeitung, December 30th 2016.  Google Scholar
  80. Storz, M./Koetter, M./Setzer, R./Westphal, A. (2017): Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe, in: Working paper series/European Central Bank, no 2104, October 2017, Frankfurt am Main.  Google Scholar
  81. Summers, L. H./Stanbury, A. (2019): Whither Central Banking, Project Syndicate. https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08.  Google Scholar
  82. Turner, A. (2016): Between the Debt and the Devil. Princeton.  Google Scholar
  83. Wicksell, K. (1936): Interest and Prices, translated by R. F. Kahn, New York.  Google Scholar
  84. Wieland, V./Afanasyeva, E./Yoo, J./Kuete, M. (2016): New Methods for Macro-Financial Model Comparison and Policy Analysis, in Taylor J. B./Uhlig H. (eds.): Handbook of Macroeconomics, Vol 2, North Holland/Elsevier.  Google Scholar

Abstract

Supporters of the Austrian School of Economics and a number of empirical studies have claimed that the increasing number of “zombie” companies is a supply-side reason for the low growth rates in Europe. Often, these studies cite empirical findings for Japan to justify their claims, and conclude that in order to overcome the stagnation phase, bad investments and thus zombie companies should be eliminated from the production process. However, such creative destruction can only prove beneficial if innovative and highly productive companies replace these zombies under full utilization of resources. We ask whether findings on the zombie problem from empirical studies on Japan can be applied directly to the current European situation. We present facts contradicting the idea that productive companies would not have been able to exploit their growth potential in (southern) Europe, allegedly because they could not have found suitable employees since these were tied up in zombie companies on a massive scale. Even under the false assumption of full employment in Europe, existing empirical work shows that the losses due to zombification are only around 3.6?% of GDP over 10 years. In our calculation, that would be 100 euros per capita and year currently far too little to call for a drastic change in ECB monetary policy towards past long-run average short-term rates.