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

Thomas Brand, Marlene Isore, Fabien Tripier

    Research output: Working paperDiscussion paperScientific

    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.
    Original languageEnglish
    Place of PublicationHelsinki
    PublisherBank of Finland
    Number of pages55
    ISBN (Electronic)978-952-323-197-9
    Publication statusPublished - 2017
    MoE publication typeD4 Published development or research report or study

    Fields of Science

    • 511 Economics

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