Uncertainty shocks and firm dynamics : Search and monitoring in the credit market

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Title: Uncertainty shocks and firm dynamics : Search and monitoring in the credit market
ISBN: 78-952-323-197-9
Author: Brand, Thomas ; Isoré, Marlène ; Tripier, Fabien
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2017
Series number: 34/2017
Year of publication: 2017
Publication date: 23.11.2017
Published in: Available also in Journal of Economic Dynamics and Control 99 ; February ; 2019
Pages: 60
Subject (yso): yritykset; yrittäjät; rahoitus; pankit; luotot; häiriöt; tuottavuus; epävarmuus
Keywords: mallit; USA; maksuvaikeudet; suhdanteet
JEL: D8; E3; E4; E5
Other keywords: uncertainty shocks; financial frictions; search and matching; business cycles; firm dynamics
Abstract: We develop a business cycle model with gross flows of firm creation and destruction.The credit market is characterized by two frictions. First,entrepreneurs undergo a costly search for intermediate funding to create a firm. Second, upon a match, a costlystate-verification contract is set up. When defaults occurs, banks monitor firms, seize their assets, and a fraction of financial relationships are severed. The model is estimated using Bayesian methods for the U.S. economy. Among other shocks, uncertainty in productivity turns out to be a major contributor to both macro-financial aggregates and firm dynamics.
Rights: https://helda.helsinki.fi/bof/copyright

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