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Persistence and Amplification of Financial Frictions

Listed author(s):
  • Shirai, Daichi

We quantitatively evaluate the various types of working capital loans affected by borrowing constraints using a simple real business cycle model. We explore which borrowing constraints generate persistence and/or amplified output responses to productivity and financial shocks. We find that limiting investment on account of borrowing constraints generates a persistent response to a one-time transitory shock. This finding implies that investment wedge plays an important role in generating persistence. There is a trade-off relationship between persistence and amplification among models and the working capital loan channel does not always generate amplification.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 72187.

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Date of creation: 08 Jun 2016
Handle: RePEc:pra:mprapa:72187
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