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The Dynamic Effects of Firm Level Borrowing Constraints

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  • John Bailey Jones

Abstract

The purpose of this paper is to develop a detailed dynamic model of firm behavior in order to see whether financial constraints are important propagation mechanisms. In addition, I consider whether the environments of individual firms affect the way in which financial constraints operate at the aggregate level. To do this, I develop a model of a firm that faces finance constraints, fixed costs and persistent idiosyncratic shocks. I find that persistent shocks can drive firms with similar financial endowments to adopt radically different financial policies. At the aggregate level, I find that financial constraints can affect the volatility and persistence of output, but that the sizes and even the directions of these effects are sensitive to firms' environments.

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File URL: http://www.albany.edu/economics/research/workingp/pre2001/colcnst2.pdf
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Bibliographic Info

Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 00-02.

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Length: 35 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:nya:albaec:00-02

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Web: http://www.albany.edu/economics/research/workingp/index.shtml

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Cited by:
  1. Daniel Kanda, 2006. "Credit Flows, Fiscal Policy, and the External Deficit of Bosnia and Herzegovina," IMF Working Papers 06/276, International Monetary Fund.

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