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Financial shocks, firm credit and the Great Recession

Neil Mehrotra and Dmitriy Sergeyev

Journal of Monetary Economics, 2021, vol. 117, issue C, 296-315

Abstract: The creation and destruction margins of employment (job flows) can be used to measure the employment effects of disruptions to firm credit. Using a firm dynamics model, we establish that a tightening of credit to firms reduces employment primarily by reducing gross job creation, exhibiting stronger effects at new, young, and middle-sized firms. The firm credit channel accounts for, at most, 18%, of the decline in US employment in the Great Recession. Using MSA-level job flows data, we show that the job flows response to identified credit shocks is consistent with our model’s predictions.

Keywords: Job flows; Financial frictions; Great Recession (search for similar items in EconPapers)
JEL-codes: E44 J60 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jmoneco.2020.01.008

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