Financial Frictions and the Extensive Margin of Activity

Jean-Christophe Poutineau () and Gauthier Vermandel
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Jean-Christophe Poutineau: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper evaluates the role of nancial intermediaries, such as banks, on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of rms operating on the goods market with nancial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to fi nance spendings during the setting period. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, fi nancial frictions play a key role in determining the number of new fi rms. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative e ffect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new fi rms. In the long run, the variance of the e ffective entry share is almost explained by supply shocks.

Keywords: DSGE model; Bayesian estimation; Extensive Margin; Financial Frictions; Financial Accelerator (search for similar items in EconPapers)
Date: 2015-09-25
New Economics Papers: this item is included in nep-dge
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01205497
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Citations: View citations in EconPapers (16)

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Journal Article: Financial frictions and the extensive margin of activity (2015)
Working Paper: Financial frictions and the extensive margin of activity (2015)
Working Paper: Financial Frictions and the Extensive Margin of Activity (2015)
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