A Stylized Model of Financially-Driven Business Cycles
AbstractWe explore the business-cycle implications of agency problems between firms and financiers. We show how these problems create liquidity shortages that can lead to corporate bankruptcy, and may generate aggregate, endogenous cycles in an economy that otherwise would have had a unique, stationary equilibrium. Some new results about the dynamics of credit rationing are derived. We argue that the modeled effect is quantitatively significant. Our model provides new insights into the role of institutions, such as bankruptcy law, in business-cycle theory.
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Bibliographic InfoPaper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 9722.
Length: 40 pages
Date of creation: 1997
Date of revision:
Contact details of provider:
Postal: Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.
Web page: http://www.cemfi.es/
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BUSINESS CYCLES ; BUSINESS FINANCING ; CREDIT ; ECONOMIC MODELS;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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- Scott, Andrew & Uhlig, Harald, 1999.
"Fickle investors: An impediment to growth?,"
European Economic Review,
Elsevier, vol. 43(7), pages 1345-1370, June.
- Andrew Scott & Harald Uhlig, 1999. "Fickle Investors: An Impediment to Growth," CEP Discussion Papers dp0415, Centre for Economic Performance, LSE.
- Scott, A. & Uhlig, H.F.H.V.S., 1998. "Fickle Investors: An Impediment to Growth?," Discussion Paper 1998-134, Tilburg University, Center for Economic Research.
- Scott, Andrew & Uhlig, Harald, 1999. "Fickle Investors: an Impediment to Growth?," CEPR Discussion Papers 2071, C.E.P.R. Discussion Papers.
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