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Uncertainty shocks and firm creation: Search and monitoring in the credit market

Author

Listed:
  • Thomas Brand
  • Marlène Isoré
  • Fabien Tripier

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

We develop a business cycle model where endogenous firm creation stems from two credit market frictions. First, entrepreneurs search for a lending relationship with a bank. Second, an optimal debt contract with monitoring is implemented. We analyze the interplay between both frictions, and embed it into an otherwise standard business cycle model which we estimate with Bayesian techniques. We find that uncertainty shocks are a prime contributor to business cycle fluctuations in the US, not only for macro-financial aggregates but also for firm creation. Moreover, we point out that the credit search friction dampens the financial accelerator mechanism because default may imply the end of the lending relationship. © 2018 Elsevier B.V.

Suggested Citation

  • Thomas Brand & Marlène Isoré & Fabien Tripier, 2019. "Uncertainty shocks and firm creation: Search and monitoring in the credit market," Post-Print hal-02877945, HAL.
  • Handle: RePEc:hal:journl:hal-02877945
    DOI: 10.1016/j.jedc.2018.11.003
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02877945
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    5. Stefano Fasani & Haroon Mumtaz & Lorenza Rossi, . "Monetary Policy and Firm Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.

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    More about this item

    Keywords

    Business cycle; Financial frictions; Firm creation; Firm dynamics; Search and matching; Uncertainty;
    All these keywords.

    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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