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

Credit frictions and the cleansing effect of recessions

  • Sophie Osotimehin

    ()

  • Francesco Pappada

    ()

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

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.virginia.edu/economics/RePEc/vir/virpap/papers/virpap403.pdf
Download Restriction: no

Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 403.

as
in new window

Length: 34 pages
Date of creation:
Date of revision:
Handle: RePEc:vir:virpap:403
Contact details of provider: Web page: http://www.virginia.edu/economics/home.html

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. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
  2. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  3. Patrick Musso & Stefano Schiavo, 2007. "The Impact of Financial Constraints on Firms Survival and Growth," Sciences Po publications 2007-37, Sciences Po.
  4. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
  5. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-49, June.
  6. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  7. Ouyang, Min, 2009. "The scarring effect of recessions," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 184-199, March.
  8. Chad Syverson, 2003. "Product Substitutability and Productivity Dispersion," NBER Working Papers 10049, National Bureau of Economic Research, Inc.
  9. Yoonsoo Lee & Toshihiko Mukoyama, 2008. "Entry, Exit, and Plant-Level Dynamics over the Business Cycle," Working Papers 08-17, Center for Economic Studies, U.S. Census Bureau.
  10. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  11. Del Gatto, Massimo & Ottaviano, Gianmarco & Pagnini, Marcello, 2007. "Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms," CEPR Discussion Papers 6336, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:vir:virpap:403. 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: (Debby Stanford)

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.