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

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

No 34/2017, Research Discussion Papers from Bank of Finland

Abstract: We develop a business cycle model with gross flows of firm creation and destruction.The credit market is characterized by two frictions. First,entrepreneurs undergo a costly search for intermediate funding to create a firm. Second, upon a match, a costlystate-verification contract is set up. When defaults occurs, banks monitor firms, seize their assets, and a fraction of financial relationships are severed. The model is estimated using Bayesian methods for the U.S. economy. Among other shocks, uncertainty in productivity turns out to be a major contributor to both macro-financial aggregates and firm dynamics.

JEL-codes: D8 E3 E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-mac and nep-sbm
Date: 2017-11-23
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