IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity

  • Aubhik Khan
  • Julia K. Thomas

We study the cyclical implications of credit market imperfections in a calibrated dynamic, stochastic general equilibrium model wherein firms face persistent shocks to aggregate and individual productivity. In our model economy, optimal capital reallocation is distorted by two frictions: collateralized borrowing and partial capital irreversibility yielding (S,s) firm-level investment policies. In the presence of persistent heterogeneity in capital, debt and total factor productivity, the effects of a financial shock are amplified and propagated through large and long-lived disruptions to the distribution of capital that, in turn, imply large and persistent reductions in aggregate total factor productivity. We find that an unanticipated tightening in borrowing conditions can, on its own, generate a large recession far more persistent than the financial shock itself. This recession, and the subsequent recovery, is distinguished both quantitatively and qualitatively from that driven by exogenous shocks to total factor productivity.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w17311.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17311.

as
in new window

Length:
Date of creation: Aug 2011
Date of revision:
Publication status: published as Aubhik Khan & Julia K. Thomas, 2013. "Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1055 - 1107.
Handle: RePEc:nbr:nberwo:17311
Note: EFG PR
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Francisco J. Buera & Yongseok Shin, 2006. "Financial Frictions and the Persistence of History," 2006 Meeting Papers 792, Society for Economic Dynamics.
  2. Aubhik Khan & Julia K. Thomas, 2000. "Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter?," Working Papers 00-10, Federal Reserve Bank of Philadelphia.
  3. Paul Gomme & B. Ravikumar & Peter Rupert, 2006. "The return to capital and the business cycle," Working Paper 0603, Federal Reserve Bank of Cleveland.
  4. Anonymous, 2006. "Cover and Table of Contents," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(01), April.
  5. Anonymous, 2006. "Front Materials," Western Economics Forum, Western Agricultural Economics Association, vol. 5(02).
  6. Caggese, Andrea, 2007. "Financing constraints, irreversibility, and investment dynamics," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2102-2130, October.
  7. Anonymous, 2006. "Contents Pages," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(03), December.
  8. Juan Cordoba & Marla Ripoll, 2002. "Credit Cycles Redux," Macroeconomics 0210004, EconWPA.
    • Juan-Carlos Cordoba & Marla Ripoll, 2004. "Credit Cycles Redux," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1011-1046, November.
  9. Anonymous, 2006. "Contents Page," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), October.
  10. Anonymous, 2006. "Inside Front Cover," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(1), April.
  11. Anonymous, 2006. "Front Materials," Western Economics Forum, Western Agricultural Economics Association, vol. 5(01).
  12. Zhu Wang, 2006. "Online banking comes of age," TEN, Federal Reserve Bank of Kansas City, issue Win, pages 22-25.
  13. Wang, Hung-Jen, 2006. "Stochastic frontier models," MPRA Paper 31079, University Library of Munich, Germany.
  14. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  15. Anonymous, 2006. "Washington Scene," Choices, Agricultural and Applied Economics Association, vol. 21(2).
  16. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  17. Aubhik Khan & Julia Thomas, 2004. "Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics," Staff Report 352, Federal Reserve Bank of Minneapolis.
  18. Anonymous, 2006. "Cover and Contents Page," Journal of Food Distribution Research, Food Distribution Research Society, vol. 37(03), November.
  19. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc.
  20. Anonymous, 2006. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 21(2).
  21. Anonymous, 2006. "Cover Page and Contents," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(02), August.
  22. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  23. Yongseok Shin & Francisco Buera, 2007. "Financial Frictions and the Persistence of History: A Quantitative Exploration," 2007 Meeting Papers 300, Society for Economic Dynamics.
  24. anonymous, 2006. "Call for Nominations," Management Science, INFORMS, vol. 52(3), pages 472-472, March.
  25. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity, Portfolio Choice, and Equilibrium Asset Returns," GSIA Working Papers 1997-45, Carnegie Mellon University, Tepper School of Business.
  26. Anonymous, 2006. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 21(3).
  27. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 285-315, 04.
  28. Heitor Almeida & Murillo Campello & Bruno Laranjeira & Scott Weisbenner, 2009. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," NBER Working Papers 14990, National Bureau of Economic Research, Inc.
  29. Gian Luca Clementi & Hugo Hopenhayn, . "A Theory of Financing Constraints and Firm Dynamics," GSIA Working Papers 2002-E9, Carnegie Mellon University, Tepper School of Business.
  30. Anonymous, 2006. "Editorial Information," Journal of Food Distribution Research, Food Distribution Research Society, vol. 37(01), March.
  31. Anonymous, 2006. "Front Material," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(03), December.
  32. Anonymous, 2006. "Front Cover," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), October.
  33. Anonymous, 2006. "Contents Pages," Journal of Food Distribution Research, Food Distribution Research Society, vol. 37(01), March.
  34. Anonymous, 2006. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 21(4).
  35. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
  36. Anonymous, 2006. "Washington Scene," Choices, Agricultural and Applied Economics Association, vol. 21(4).
  37. Anonymous, 2006. "Contents and Cover Page," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 34(2).
  38. anonymous, 2006. "Georgia mirrors the nation," EconSouth, Federal Reserve Bank of Atlanta, issue Q 4.
  39. Anonymous, 2006. "Contents and Cover Page," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 34(1).
  40. Anonymous, 2006. "Front Cover," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(1), April.
  41. Hidvegi, Zoltan & Wang, Wenli & Whinston, Andrew B., 2006. "Buy-price English auction," Journal of Economic Theory, Elsevier, vol. 129(1), pages 31-56, July.
  42. Anonymous, 2006. "Contents Pages," Journal of Food Distribution Research, Food Distribution Research Society, vol. 37(02), July.
  43. Anonymous, 2006. "Inside Front Cover," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), October.
  44. anonymous, 2006. "Community profile: Arizona," Community Investments, Federal Reserve Bank of San Francisco, issue Oct, pages 9.
  45. Anonymous, 2006. "Cover And Contents Pages," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(02), August.
  46. Anonymous, 2006. "Cover and Contents Pages," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(01), April.
  47. Anonymous, 2006. "Contents Page," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(1), April.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity (JPE 2013) in ReplicationWiki

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17311. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.