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The Dynamic Effects of Firm Level Borrowing Constraints

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  • John Bailey Jones

Abstract

The purpose of this paper is to develop a detailed dynamic model of firm behavior in order to see whether financial constraints are important propagation mechanisms. In addition, I consider whether the environments of individual firms affect the way in which financial constraints operate at the aggregate level. To do this, I develop a model of a firm that faces finance constraints, fixed costs and persistent idiosyncratic shocks. I find that persistent shocks can drive firms with similar financial endowments to adopt radically different financial policies. At the aggregate level, I find that financial constraints can affect the volatility and persistence of output, but that the sizes and even the directions of these effects are sensitive to firms' environments.

Suggested Citation

  • John Bailey Jones, 2000. "The Dynamic Effects of Firm Level Borrowing Constraints," Discussion Papers 00-02, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:00-02
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    Cited by:

    1. Mr. Daniel S Kanda, 2006. "Credit Flows, Fiscal Policy, and the External Deficit of Bosnia and Herzegovina," IMF Working Papers 2006/276, International Monetary Fund.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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