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Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market

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  • Brand, Thomas
  • Isoré, Marlène
  • Tripier, Fabien

Abstract

We develop a business cycle model with gross flows of firm creation and destruction. The credit market is characterized by two frictions. First, entrepreneurs undergo a costly search for intermediate funding to create a firm. Second, upon a match, a costly-state-verification contract is set up. When defaults occurs, banks monitor firms, seize their assets, and a fraction of financial relationships are severed. The model is estimated using Bayesian methods for the U.S. economy. Among other shocks, uncertainty in productivity turns out to be a major contributor to both macro-financial aggregates and firm dynamics.

Suggested Citation

  • Brand, Thomas & Isoré, Marlène & Tripier, Fabien, 2017. "Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market," CEPREMAP Working Papers (Docweb) 1707, CEPREMAP.
  • Handle: RePEc:cpm:docweb:1707
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    1. Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market
      by Christian Zimmermann in NEP-DGE blog on 2017-12-23 10:30:33

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    Cited by:

    1. Rossi, Lorenza, 2019. "The overshooting of firms’ destruction, banks and productivity shocks," European Economic Review, Elsevier, vol. 113(C), pages 136-155.

    More about this item

    Keywords

    Uncertainty shocks; Financial frictions; Search and Matching; Business Cycles; Firm Dynamics;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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