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Author: Mr.Romain A Duval
Publisher: International Monetary Fund
ISBN: 148430070X
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
We study the role of financial frictions in explaining the sharp and persistent productivity growth slowdown in advanced economies after the 2008 global financial crisis. Using a rich cross-country, firm-level data set and exploiting quasi-experimental variation in firm-level exposure to the crisis, we find that the combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-crisis productivity slowdown. Specifically: (i) firms that entered the crisis with weaker balance sheets experienced decline in total factor productivity growth relative to their less vulnerable counterparts after the crisis; (ii) this decline was larger for firms located in countries where credit conditions tightened more; (iii) financially fragile firms cut back on intangible capital investment compared to more resilient firms, which is one plausible way through which financial frictions undermined productivity. All of these effects are highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth. Furthermore, our results are not driven by more vulnerable firms being less productive or having experienced slower productivity growth before the crisis, or differing from less vulnerable firms along other dimensions.
Author: Mr.Romain A Duval
Publisher: International Monetary Fund
ISBN: 148430070X
Category : Business & Economics
Languages : en
Pages : 32
Get Book Here
Book Description
We study the role of financial frictions in explaining the sharp and persistent productivity growth slowdown in advanced economies after the 2008 global financial crisis. Using a rich cross-country, firm-level data set and exploiting quasi-experimental variation in firm-level exposure to the crisis, we find that the combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-crisis productivity slowdown. Specifically: (i) firms that entered the crisis with weaker balance sheets experienced decline in total factor productivity growth relative to their less vulnerable counterparts after the crisis; (ii) this decline was larger for firms located in countries where credit conditions tightened more; (iii) financially fragile firms cut back on intangible capital investment compared to more resilient firms, which is one plausible way through which financial frictions undermined productivity. All of these effects are highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth. Furthermore, our results are not driven by more vulnerable firms being less productive or having experienced slower productivity growth before the crisis, or differing from less vulnerable firms along other dimensions.
Author: David Benjamin
Publisher:
ISBN:
Category : Industrial productivity
Languages : en
Pages : 24
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Book Description
Author: Juan Carlos Ruiz-García
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Francesco Manaresi
Publisher: International Monetary Fund
ISBN: 1498315917
Category : Business & Economics
Languages : en
Pages : 75
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Book Description
We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.
Author: Mr.Romain A Duval
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781484302613
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
We study the role of financial frictions in explaining the sharp and persistent productivity growth slowdown in advanced economies after the 2008 global financial crisis. Using a rich cross-country, firm-level data set and exploiting quasi-experimental variation in firm-level exposure to the crisis, we find that the combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-crisis productivity slowdown. Specifically: (i) firms that entered the crisis with weaker balance sheets experienced decline in total factor productivity growth relative to their less vulnerable counterparts after the crisis; (ii) this decline was larger for firms located in countries where credit conditions tightened more; (iii) financially fragile firms cut back on intangible capital investment compared to more resilient firms, which is one plausible way through which financial frictions undermined productivity. All of these effects are highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth. Furthermore, our results are not driven by more vulnerable firms being less productive or having experienced slower productivity growth before the crisis, or differing from less vulnerable firms along other dimensions.
Author: Econometric Society. World Congress
Publisher: Cambridge University Press
ISBN: 1107016045
Category : Business & Economics
Languages : en
Pages : 511
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Book Description
The first volume of edited papers from the Tenth World Congress of the Econometric Society 2010.
Author: Marialuz Moreno Badia
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 42
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Book Description
This paper focuses on the macroeconomic and budgetary impact of tax reforms in a New Keynesian two-country model. Our results show that both income and consumption unilateral tax rate reductions do not constitute a "free lunch," in the sense that they have negative budgetary consequences for the country which implements them. In addition, the degree of self-financing implied by our model is in the -24 percent range. Since the degree of self-financing estimated in previous literature was larger, we conclude that in our model not only the "lunch" is not "free," but is also not that "cheap." A comparison of alternative (income-tax versus consumption-tax based) fiscal stimulus packages shows that consumption tax cuts imply a larger short-run impact on domestic output but the income tax cuts stimulate the domestic economy more in the long run. We also look at the implications of a revenue-neutral tax reform in which consumption taxes are increased to compensate for lower income tax collection.
Author: Francesco Furlanetto
Publisher: International Monetary Fund
ISBN: 1498305326
Category : Business & Economics
Languages : en
Pages : 44
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Book Description
The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
Author: Saeed Shaker Akhtekhane
Publisher:
ISBN:
Category : Barriers to entry (Industrial organization)
Languages : en
Pages : 0
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Book Description
In these essays, I study cross-country differences in productivity caused by misallocation of resources. Particularly, I examine the misallocation created by financial frictions as well as that created by entry barriers. In the first chapter, "Financial Frictions and Productivity Losses: Importance of Default-Led Heterogeneity in Collateral and Loan Rates", I develop a model of entrepreneurship with default to quantitatively analyze the impact of financial frictions on total factor productivity (TFP). Default risk justifies the need for collateral. Entrepreneurs are charged higher loan rates if the value of their collateral is low, which favors the wealthy over the poor, regardless of their talent, and discourages poor individuals from self-financing to start or expand their businesses. The close link between deposit rates and loan rates, in most models, is broken. Consistent with empirical evidence, my model can generate a weak self-financing motive while allowing for a highly persistent individual productivity, a challenge for existing models of financial frictions. Financial frictions in my model stem from three different sources: limited enforceability related to the recovery rate of collateral by financial intermediaries; informational frictions related to inefficiencies in financial intermediaries' evaluation of entrepreneurs' default risks; and frictions related to entrepreneurs' expectations of future loan terms. I use machine learning classification techniques to solve the problem financial intermediaries face evaluating entrepreneurs' default risks. My analysis shows sizeable losses from financial frictions, more than 40% in TFP losses for the U.S. if we were to replace its financial markets with a poorly functioning one. Large TFP losses arise as there is amplification between the three sources of financial friction. Without default and heterogeneity in collateral and loan rates, my model would function similarly to a neo-classical model, and there would be a small impact of financial frictions with only a 7% loss in TFP. In the second chapter, "Impact of Entry Costs on Aggregate Productivity: Financial Development Matters", I revisit the question: what is the impact of entry costs on cross-country differences in output and total factor productivity (TFP)? I argue that for the countries with low levels of financial development, the answer is the conventional one in the literature, that higher entry costs cause misallocation of productive factors and lower TFP. However, for countries with reasonably high levels of financial development, the conventional answer does not hold. Motivated by observations on cross-country data, I propose a new theory on the impact of entry costs on TFP. In my mechanism, two competing forces affect TFP when entry cost changes: A wealth-based selection force and a productivity-based selection force. This results in TFP being a hump-shaped function of entry costs. That is, entry costs are not inherently bad for TFP if their target is to deter low productivity individuals from starting businesses. I develop an analytically tractable model of firm dynamics with entry barriers and financial frictions and derive the sufficient conditions for the impact of entry cost on TFP in both wealth- and productivity-based selection phases. In the third chapter, "Firm Entry and Exit in Continuous Time", I develop and analyze a model of firms' entry and exit in a continuous-time setting. I build my analysis based on Hopenhayn (1992) firm dynamics framework and use the continuous-time structure to solve the model. Solving the model in continuous time brings in many advantages, such as lower computational cost and the model's tractability. However, there are some challenges too. One of the major challenges is to have entry cost in the model, i.e., to obtain a Hamilton-Jacobi-Bellman equation that incorporates the entry cost. I use a form of exit cost as the future value of the entry cost to avoid this problem. To do so, I have to keep track of the firms' age distribution in addition to the distribution of the shocks, which makes my model richer than Hopenhayn's (1992). To solve for the joint stationary distribution of the firms, I introduce a simple process for aging and obtain the Kolmogorov forward equation using the age and shock processes. Another methodological contribution is to introduce a way to deal with the Kolmogorov equation in two states with discontinuity and combine them into one equation that governs the state of the economy. The results obtained in this chapter are in line with those reported in Hopenhayn (1992). However, the methods, tools, and the way of approaching the model differs depending on whether I solve the model in discrete or continuous time. The tools and procedures developed in this chapter can easily be extended to other optimal stopping time problems.
Author: Oliver Levine
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
The effect of financing frictions on firm productivity growth is not well understood. Using a model we show that a rise in financial frictions leads to increased sensitivity of productivity growth to the use of external finance. We test this prediction using a large dataset of mostly private European firms and find strong evidence supporting the prediction. Our findings demonstrate an important link between financial markets and the real economy, and help to explain why economic activity remains persistently depressed following financial crises.
