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.
|Place of Publication||Helsinki|
|Publisher||Bank of Finland|
|Number of pages||55|
|Publication status||Published - 2017|
|MoE publication type||D4 Published development or research report or study|
Fields of Science
- 511 Economics