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Firm entry under financial frictions

Author

Listed:
  • Miguel Casares

    () (Departamento de Economía-UPNA)

  • Jean-Christophe Poutineau

    () (Faculté des Sciences Economiques, Université de Rennes I, Rennes, France)

Abstract

Introducing both endogenous firm entry and a requirement for external finance in a general-equilibrium model leads to 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, net firm creation amplifies the steady-state 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 in steady state, opposite to standard models with constant number of firms.

Suggested Citation

  • Miguel Casares & Jean-Christophe Poutineau, 2011. "Firm entry under financial frictions," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1102, Departamento de Economía - Universidad Pública de Navarra.
  • Handle: RePEc:nav:ecupna:1102
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    File URL: ftp://ftp.econ.unavarra.es/pub/DocumentosTrab/DT1102.PDF
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    References listed on IDEAS

    as
    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. 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, pages 1-41.
    3. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, pages 691-723.
    4. 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.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, pages 297-308.
    6. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    7. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
    8. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2010. "Welfare-maximizing monetary policy under parameter uncertainty," Journal of Applied Econometrics, John Wiley & Sons, Ltd., pages 129-143.
    9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, pages 297-308.
    10. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco.
    11. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
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    Cited by:

    1. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2015. "Financial frictions and the extensive margin of activity," Research in Economics, Elsevier, pages 525-554.

    More about this item

    Keywords

    firm creation; financial frictions; steady-state analysis.;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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