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 costly-state-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||Paris|
|Publisher||Centre pour la recherche économique et ses application|
|Number of pages||55|
|Publication status||Published - 2017|
|MoE publication type||D4 Published development or research report or study|
Fields of Science
- 511 Economics
Brand, T., Isore, M., & Tripier, F. (2017). Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market. (CEPREMAP working papers; Vol. 1707). Paris: Centre pour la recherche économique et ses application.