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Financial Fragility, Heterogeneous Firms and the Cross Section of the Business Cycle

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Author Info
Sean Holly (Cambridge University)
Emiliano Santoro (Cambridge University)

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Abstract

There is growing evidence that the cross section of the growth rate of firms is subject to systematic distortions at business cycle frequencies. In this paper we briefly review this evidence and then offer a theoretical model that incorporates nonlinearities in the way in which firms respond to aggregate and ideosyncratic shocks. We are able to replicate the most commonly found regularity - skewness in the cross section is counter-cyclical - and show that the strength of this relationship varies with the extent of financial fragility

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 96.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:96

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Keywords: financial fragility; cross section; business cycle;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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