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External financing and the role of financial frictions over the business cycle: Measurement and theory

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  • Zetlin-Jones, Ariel
  • Shourideh, Ali

Abstract

Empirically, there is substantial cross-sectional variation in firms’ use of external funds: roughly 80% of investment by privately held firms is financed externally, compared to 20% for publicly traded firms. In a model consistent with privately held and publicly traded firms’ use of external funds, financial shocks generate only a modest response of output. This exercise casts doubt on the ability of financial shocks to generate significant economic fluctuations and emphasizes the role of non-financial linkages in understanding the importance of financial shocks.

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  • Zetlin-Jones, Ariel & Shourideh, Ali, 2017. "External financing and the role of financial frictions over the business cycle: Measurement and theory," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 1-15.
  • Handle: RePEc:eee:moneco:v:92:y:2017:i:c:p:1-15
    DOI: 10.1016/j.jmoneco.2017.08.001
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