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Financial frictions and the extensive margin of activity

Listed author(s):
  • Jean-Christophe Poutineau

    (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)

  • Gauthier Vermandel

    (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, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

This paper evaluates the role of financial intermediaries, such as banks, in the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms operating on the goods market with financial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to finance spendings during the setting period. This model is estimated on US data between 1993Q1 and 2012Q3. We get three main results. First, financial frictions play a key role in determining the number of new firms. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative effect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by supply shocks.

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Paper provided by HAL in its series Post-Print with number halshs-01244561.

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Date of creation: Dec 2015
Publication status: Published in Research in Economics, Elsevier, 2015, 69 (4), pp.525-554. <10.1016/j.rie.2015.09.005>
Handle: RePEc:hal:journl:halshs-01244561
DOI: 10.1016/j.rie.2015.09.005
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01244561
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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