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Firm entry under financial frictions

Listed author(s):
  • Miguel Casares

    ()

    (Departamento de Economia - Universidad Pública de Navarra)

  • Jean-Christophe Poutineau

    ()

    (macroéconomie et finance - CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique)

How does a general-equilibrium model behave when incorporating competitive firm entry that requires external finance? After conducting a steady-state analysis, we reach three main results. First, the financial constraint has contractionary effects on both equity investment and the labor supply as they are inversely related to the marginal finance cost. Second, the dynamics of firm creation and destruction amplify the impact of changes in either productivity or banking efficiency due to procyclical firm entry. Third, a higher elasticity of substitution (that implies a lower mark-up) cuts the number of firms and makes aggregate output fall.

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Paper provided by HAL in its series Post-Print with number halshs-00816994.

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Date of creation: 2013
Publication status: Published in Review of Development Economics, Wiley, 2013, 17 (2), pp.301-318. <10.1111/rode.12033>
Handle: RePEc:hal:journl:halshs-00816994
DOI: 10.1111/rode.12033
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00816994
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
  2. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  3. Goodfriend, Marvin & McCallum, Bennett T., 2007. "Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1480-1507, July.
  4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
  5. Casares Miguel & Poutineau Jean-Christophe, 2011. "Short-Run and Long-Run Effects of Banking in a New Keynesian Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-41, May.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  7. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
  8. Gilchrist, Simon, 2007. "Comment on: Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1508-1514, July.
  9. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
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