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Uncertainty shocks and firm creation: Search and monitoring in the credit market

Thomas Brand (), Marlène Isoré () and Fabien Tripier ()

Journal of Economic Dynamics and Control, 2019, vol. 99, issue C, 19-53

Abstract: We develop a business cycle model where endogenous firm creation stems from two credit market frictions. First, entrepreneurs search for a lending relationship with a bank. Second, an optimal debt contract with monitoring is implemented. We analyze the interplay between both frictions, and embed it into an otherwise standard business cycle model which we estimate with Bayesian techniques. We find that uncertainty shocks are a prime contributor to business cycle fluctuations in the US, not only for macro-financial aggregates but also for firm creation. Moreover, we point out that the credit search friction dampens the financial accelerator mechanism because default may imply the end of the lending relationship.

Keywords: Uncertainty; Financial frictions; Search and matching; Business cycle; Firm creation; Firm dynamics (search for similar items in EconPapers)
JEL-codes: D8 E3 E4 E5 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Uncertainty Shocks and Firm Creation: Search and Monitoring in the Credit Market (2018) Downloads
Working Paper: Uncertainty shocks and firm dynamics: Search and monitoring in the credit market (2017) Downloads
Working Paper: Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market (2017) Downloads
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