Liquidity Flows and Fragility of Business Enterprises

Wouter den Haan, Garey Ramey and Joel Watson
Authors registered in the RePEc Author Service: Wouter Denhaan ()

No 7057, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers the efficiency of financial intermediation and the propagation of business cycle shocks in a model of long-term relationships between entrepreneurs and lenders lenders may be constrained in their short-run access to liquidity. When liquidity is low, relationships are subject to breakups that lead to loss of joint surplus. Liquidity outflows cause damage to financial structure by breaking up relationships, and damage persists due to frictions in the formation of new relationships. Feedbacks between aggregate investment and the structure of intermediation greatly magnify the effects of shocks. For large shocks, financial collapse may become inescapable in the absence of external intervention.

JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 1999-03
New Economics Papers: this item is included in nep-dge and nep-pke
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Den Haan, Wouter J., Garey Ramey and Joel Watson. "Liquidity Flows And Fragility Of Business Enterprises," Journal of Monetary Economics, 2003, v50(6,Sep), 1215-1241.

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Journal Article: Liquidity flows and fragility of business enterprises (2003)
Working Paper: Liquidity Flows and Fragility of Business Enterprises (2000)
Working Paper: Liquidity Flows and Fragility of business Enterprises (2000)
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Working Paper: Liquidity Flows and Fragility of Business Enterprises (1999)
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