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Credit Crunches and Credit Allocation in a Model of Entrepreneurship

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  • Marco Bassetto
  • Marco Cagetti
  • Mariacristina De Nardi

Abstract

We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business in this set-up, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.

Suggested Citation

  • Marco Bassetto & Marco Cagetti & Mariacristina De Nardi, 2013. "Credit Crunches and Credit Allocation in a Model of Entrepreneurship," NBER Working Papers 19296, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19296
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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