Credit Crunches and Credit Allocation in a Model of Entrepreneurship

Marco Bassetto, Marco Cagetti and Mariacristina De Nardi
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Marco Cagetti: Board of Governors

Review of Economic Dynamics, 2015, vol. 18, issue 1, 53-76

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, 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. (Copyright: Elsevier)

Keywords: Credit crunches; Credit allocation; Entrepreneurship; Borrowing constraints; Wealth inequality (search for similar items in EconPapers)
JEL-codes: D58 E21 E22 E32 E44 E62 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (49)

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Working Paper: Credit Crunches and Credit Allocation in a Model of Entrepreneurship (2013)
Working Paper: Credit Crunches and Credit Allocation in a Model of Entrepreneurship (2011)
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DOI: 10.1016/j.red.2014.08.003

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