Credit frictions and the cleansing effect of recessions
AbstractRecessions are conventionally considered as times when the least productive rms are driven out of the market. Do credit frictions hamper this cleansing e ect of recessions? We build and calibrate a model of rm dynamics with endogenous exit and credit frictions to investigate this question. We nd that, despite their distortionary e ect on the selection of exiting rms, credit frictions do not reverse the cleansing e ect of recession. Average idiosyncratic productivity rises following an adverse aggregate shock. Our results also suggest that recessions have a modest impact on average productivity whatever the level of credit frictions
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Bibliographic InfoPaper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 403.
Length: 34 pages
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Web page: http://www.virginia.edu/economics/home.html
cleansing; business cycles; rm dynamics; credit frictions;
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
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-DGE-2013-04-27 (Dynamic General Equilibrium)
- NEP-MAC-2013-04-27 (Macroeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Credit frictions and the cleansing effect of recessions
by Christian Zimmermann in NEP-DGE blog on 2013-05-05 17:15:39
- Lucia Foster & Cheryl Grim & John Haltiwanger, 2013. "Reallocation In The Great Recession: Cleansing Or Not?," Working Papers 13-42, Center for Economic Studies, U.S. Census Bureau.
- Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
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