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Credit frictions and the cleansing effect of recessions

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  • Sophie Osotimehin

    ()

  • Francesco Pappada

    ()

Abstract

Recessions are conventionally considered as times when the least productive rms are driven out of the market. Do credit frictions hamper this cleansing e ect of recessions? We build and calibrate a model of rm dynamics with endogenous exit and credit frictions to investigate this question. We nd that, despite their distortionary e ect on the selection of exiting rms, credit frictions do not reverse the cleansing e ect of recession. Average idiosyncratic productivity rises following an adverse aggregate shock. Our results also suggest that recessions have a modest impact on average productivity whatever the level of credit frictions

Suggested Citation

  • Sophie Osotimehin & Francesco Pappada, "undated". "Credit frictions and the cleansing effect of recessions," Virginia Economics Online Papers 403, University of Virginia, Department of Economics.
  • Handle: RePEc:vir:virpap:403
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Credit frictions and the cleansing effect of recessions
      by Christian Zimmermann in NEP-DGE blog on 2013-05-05 22:15:39

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    Cited by:

    1. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    2. UESUGI Iichiro & HOSONO Kaoru & MIYAKAWA Daisuke & ONO Arito & UCHIDA Hirofumi, 2018. "Reallocation of Tangible Assets and Productivity," Discussion papers 18048, Research Institute of Economy, Trade and Industry (RIETI).
    3. Andres Kuusk & Karsten Staehr & Uku Varblane, 2015. "Sectoral change and labour productivity growth during boom, bust and recovery," Bank of Estonia Working Papers wp2015-2, Bank of Estonia, revised 30 Dec 2015.
    4. Cristina Fernández & Roberta García & Paloma Lopez-Garcia & Benedicta Marzinotto & Roberta Serafini & Juuso Vanhala & Ladislav Wintr, 2017. "Firm growth in Europe: An overview based on the COMPNET labour module," BCL working papers 107, Central Bank of Luxembourg.
    5. Gamberoni, Elisa & Giordano, Claire & Lopez-Garcia, Paloma, 2016. "Capital and labour (mis)allocation in the euro area: some stylized facts and determinants," Working Paper Series 1981, European Central Bank.
    6. V. Bignon & F. Boissay & C. Cahn & L.-M. Harpedanne de Belleville, 2016. "Extended eligibility of credit claims for Eurosystem refinancing Consequences for the supply of credit to companies," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 15-23, Autumn.
    7. Hwan Jo & Tatsuro Senga, 2017. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Working Papers 839, Queen Mary University of London, School of Economics and Finance.
    8. repec:wfo:wstudy:61057 is not listed on IDEAS
    9. Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
    10. Rahul Mukherjee & Christian Proebsting, 2015. "Survival of the Fittest: Corporate Control and the Cleansing Effect of Financial Crises," IHEID Working Papers 20-2015, Economics Section, The Graduate Institute of International Studies, revised 01 Oct 2015.
    11. J. Morenas & B. Rudelle, 2016. "Money and its counterparts in France and in the euro area," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 25-34, Autumn.
    12. A. Berthou, 2016. "Current account adjustments and productivity dynamics in Europe during the crisis," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 59-70, Autumn.
    13. R. Cezar, 2016. "France’s trade integration measured in value added," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 47-58, Autumn.
    14. V. Grossmann-Wirth & M. Vari, 2016. "Exiting low interest rates in a situation of excess liquidity: the experience of the Fed," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 5-14, Autumn.
    15. C. Guette-Khiter, 2016. "Non-resident holdings of French CAC 40 companies at end-2015," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 35-46, Autumn.
    16. Ursel Baumann & Melina Vasardani, 2016. "The slowdown in US productivity growth - what explains it and will it persist?," Working Papers 215, Bank of Greece.

    More about this item

    Keywords

    cleansing; business cycles; rm dynamics; credit frictions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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