The Dynamic Effects of Firm-Level Borrowing Constraints

John Jones

Journal of Money, Credit and Banking, 2003, vol. 35, issue 5, 743-62

Abstract: In this paper, I develop a detailed dynamic model of firm behavior in order to see whether financial constraints and endogenous exit are important propagation mechanisms. To do this, I construct an economy where firms face financial constraints, fixed costs, and persistent idiosyncratic shocks. Using numerical methods, I analyze how a large collection of these firms responds to aggregate productivity shocks. A common result is that financial constraints tend to dampen the economy's initial response to aggregate productivity shocks but equity accumulation and exit dynamics amplify the longer-term response. The relative sizes of these two effects, however, are sensitive to firms' environments.

Date: 2003
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Working Paper: The Dynamic Effects of Firm Level Borrowing Constraints (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:35:y:2003:i:5:p:743-62

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