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Macroeconomic implications of insolvency regimes

Benjamin Hemingway ()

No 77, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: The impact of creditor and debtor rights following firm insolvency are studied in a firm dynamics model where defaulting firms choose between restructuring or exit. The model accounts for differing effects of productivity shocks across economies that differ in the credit/debtor rights. Following a negative shock labour productivity falls sharply in a creditor-friendly regime such as the UK while in a debtor-friendly regime such as the US, there is a larger employment response. This paper suggests a possible explanation for the different employment and labour productivity response in the UK and US since the financial crisis.

Keywords: Bankruptcy; Insolvency; Firm Financing (search for similar items in EconPapers)
JEL-codes: D21 E22 G33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2020-06-18
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-ent, nep-fdg, nep-mac and nep-ore
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