Financial Frictions and the Extensive Margin of Activity

Jean-Christophe Poutineau and Gauthier Vermandel
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Jean-Christophe Poutineau: CREM, UMR CNRS 6211, University of Rennes 1, France

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: This paper evaluates the role of financial intermediaries on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms with financial frictions giving rise to the financial accelerator. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, financial frictions play a key role as a transmission channel for monetary policy shocks to get a standard drop in the number of new firms following a restrictive monetary policy decision. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative e ect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by a combination of supply shocks.

Keywords: Extensive Margin; Financial Frictions; Financial Accelerator; DSGE model; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-dge, nep-ino, nep-mac and nep-mon
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Financial frictions and the extensive margin of activity (2015)
Working Paper: Financial frictions and the extensive margin of activity (2015)
Working Paper: Financial Frictions and the Extensive Margin of Activity (2015)
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