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
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