Bankruptcies and aggregate economic fluctuations

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Title: Bankruptcies and aggregate economic fluctuations
Author: Starck, Christian ; Virén, Matti
Organization: Bank of Finland
Suomen Pankki
Department / Unit: Research Department
Series: Bank of Finland Research Discussion Papers
Suomen Pankin keskustelualoitteita
Series number: 25/1992
Year of publication: 1992
Publication date: 10.9.1992
Pages: 24
Subject (yso): konkurssi; suhdannevaihtelut; taloudelliset mallit; aikasarjat; häiriöt
Other keywords: business cycles; bankruptcy; time series models
Abstract: This paper explores the determinants of aggregate economic fluctuations in Finland. The analysis makes use of aggregate monthly time series for some financial and non-financial variables. covering the period 1922-1990. In particular, we scrutinize the role of bankruptcies in the propagation mechanism of aggregate economic shocks. In analyzing the role of bankruptcies we also try to find out whether money or credit helps more in predicting the movements in corporate failures and overall economic activity. The empirical analyses indicate that bankruptcies constitute an important ingredient as regards the determination of other variables. It also tuI1J.s out that overall liquidity and firm failures are c10sely related. In comparing money and credit the former appears to be much more important as regards the .propagation mechanism. We also find that the basic relationships are strikingly stable over long periods. Finally, we find some evidence of non-linearities' in the financial and non-financial time series.

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