Financial fragility, patterns of firms' entry and exit and aggregate dynamics
Recent literature stresses the drawbacks of the representative agent ap-proach. A growing number of contributions construct model which allows for agents heterogeneity [1, 2] while others claim that aggregate phenomena could be explained by the failure of the law of large numbers rather than by exogenous shocks (see  for instance). Another strand of literature stresses the importance of financial factors in determining the behavior of real vari-ables [4, 5, 6]. A few recent papers combine the two concepts. They show that a measure of dispersion of the distribution, other than its average value, matters for the dynamics of the aggregate variable, i.e., one should consider the whole (statistical) distribution of individual variables . Of course, this distribution is heavy in uenced by the "entry-exit" process: bankruptcy eliminates the "worse" tail of the distribution, while the characteristics of the entrants modify it. Some analytical results has been already reached within such a framework .The goal of this paper is to verify if and how information availability on the credit market affects the economic dynamics and the distribution of firms with respect to their financial position and size. Moreover, ows into and out of the industry could be affected by credit availability. Our results show that the mean level and the variance of indebtedness of the system varies with the availability of information. In particular, if information is asymmetric the firmsÆ leverage ratio (as proxied by the ratio of corporate debt to capital) is higher and varies very smoothly. Aggregate output is also higher when firms are very leveraged and uctuations are amplified. Since the share of more leveraged firms is procyclical, cyclical downturns are driven by the exit process. We may therefore state that, according to this model, firmsÆ financial distribution movements drive the business cycle. Our results are corroborated by an econometric analysis of the mod
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
- Luca Stanca & Domenico Delli Gatti & Mauro Gallegati, 1999. "Financial fragility, heterogeneous agents, and aggregate fluctuations: evidence from a panel of US firms," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 87-99.
- Fisher, Jonas D M, 1999.
"Credit Market Imperfections and the Heterogeneous Response of Firms to Monetary Shocks,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 31(2), pages 187-211, May.
- Jonas D.M. Fisher, 1998. "Credit market imperfections and the heterogeneous response of firms to monetary shocks," Working Paper Series, Macroeconomic Issues 96-23, Federal Reserve Bank of Chicago.
- Thomas F. Cooley & Vincenzo Quadrini, 1999.
"Financial Markets and Firm Dynamics,"
99-14, New York University, Leonard N. Stern School of Business, Department of Economics.
- Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995.
"Aggregate Employment Dynamics: Building From Microeconomic Evidence,"
NBER Working Papers
5042, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March.
- Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo 6, Centro de Economía Aplicada, Universidad de Chile.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
NBER Working Papers
6455, National Bureau of Economic Research, Inc.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Nobuhiro Kiyotaki & John Moore, 1995.
NBER Working Papers
5083, National Bureau of Economic Research, Inc.
- Pietro Reichlin & Paolo Siconolfi, 1998.
"Adverse Selection of Investment Projects and the Business Cycle,"
Temi di discussione (Economic working papers)
326, Bank of Italy, Economic Research and International Relations Area.
- Reichlin, Pietro & Siconolfi, Paolo, 1997. "Adverse Selection of Investment Projects and the Business Cycle," CEPR Discussion Papers 1631, C.E.P.R. Discussion Papers.
- Reichlin, P. & Siconolfi, P., 1998. "Adverse Selection of Investment Projects and the Business Cycle," Papers 326, Banca Italia - Servizio di Studi.
- Greenwald, Bruce C & Stiglitz, Joseph E, 1993.
"Financial Market Imperfections and Business Cycles,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(1), pages 77-114, February.
- Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
- Caballero, R.J. & Hammour, M.L., 1991.
"The Cleansing Effect of Recessions,"
1991_59, Columbia University, Department of Economics.
- Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988.
"Financing Constraints and Corporate Investment,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
- repec:cup:cbooks:9780521465618 is not listed on IDEAS
- Sidney G. Winter & Yuri M. Kaniovski & Giovanni Dosi, 2003.
"A Baseline Model of Industry Evolution,"
LEM Papers Series
2003/12, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
- Williamson, Stephen D., 1996. "Real business cycle research comes of age: A review essay," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 161-170, August.
- Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
- Stanca, Luca & Gallegati, Mauro, 1999. "The Dynamic Relation between Financial Positions and Investment: Evidence from Company Account Data," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 551-72, September.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:51:y:2003:i:1:p:79-97. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.