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Persistence and Amplification of Financial Frictions

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  • Shirai, Daichi

Abstract

We quantitatively evaluate the various types of working capital loans affected by borrowing constraints using a simple real business cycle model. We explore which borrowing constraints generate persistence and/or amplified output responses to productivity and financial shocks. We find that limiting investment on account of borrowing constraints generates a persistent response to a one-time transitory shock. This finding implies that investment wedge plays an important role in generating persistence. There is a trade-off relationship between persistence and amplification among models and the working capital loan channel does not always generate amplification.

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  • Shirai, Daichi, 2016. "Persistence and Amplification of Financial Frictions," MPRA Paper 72187, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72187
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    More about this item

    Keywords

    Financing frictions; Business cycle propagation; Persistence; Business cycle accounting;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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