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Financial Frictions and the Extensive Margin of Activity

Author

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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)

  • Gauthier Vermandel

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres)

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.

Suggested Citation

  • Jean-Christophe Poutineau & Gauthier Vermandel, 2015. "Financial Frictions and the Extensive Margin of Activity," Working Papers halshs-01205497, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01205497
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01205497
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    Citations

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    Cited by:

    1. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.
    2. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    3. Etro, Federico, 2020. "Technological Foundations for Dynamic Models with Endogenous Entry," European Economic Review, Elsevier, vol. 128(C).
    4. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    5. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    6. Savagar, Anthony & Dixon, Huw, 2020. "Firm entry, excess capacity and endogenous productivity," European Economic Review, Elsevier, vol. 121(C).
    7. Etro, Federico & Rossi, Lorenza, 2015. "Optimal monetary policy under Calvo pricing with Bertrand competition," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 423-440.
    8. Marta Aloi & Huw Dixon & Anthony Savagar, 2021. "Labor Responses, Regulation, and Business Churn," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(1), pages 119-156, February.
    9. Etro, Federico, 2016. "Endogenous market structures in the credit market and Ricardian equivalence," Economics Letters, Elsevier, vol. 140(C), pages 14-18.
    10. Brand, Thomas & Isoré, Marlène & Tripier, Fabien, 2019. "Uncertainty shocks and firm creation: Search and monitoring in the credit market," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 19-53.
    11. Brand, Thomas & Isoré, Marlène & Tripier, Fabien, 2019. "Uncertainty shocks and firm creation: Search and monitoring in the credit market," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 19-53.
    12. repec:zbw:bofrdp:2017_034 is not listed on IDEAS
    13. Jean-Christophe Poutineau & Gauthier Vermandel, 2017. "A Welfare Analysis of Macroprudential Policy Rules in the Euro Area," Revue d'économie politique, Dalloz, vol. 127(2), pages 191-226.
    14. Thibaud Cargoet & Jean-Christophe Poutineau, 2018. "Financial Disruption and State Dependant Credit Policy," Post-Print halshs-01683785, HAL.
    15. Jean-Christophe Poutineau & Gauthier Vermandel, 2017. "A Welfare Analysis of Macroprudential Policy Rules in the Euro Area," Post-Print hal-01619806, HAL.
    16. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2015. "The domestic and international effects of euro area market reforms," Research in Economics, Elsevier, vol. 69(4), pages 555-581.
    17. Brand, Thomas & Isoré, Marlène & Tripier, Fabien, 2017. "Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market," CEPREMAP Working Papers (Docweb) 1707, CEPREMAP.

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    More about this item

    Keywords

    DSGE model; Bayesian estimation; Extensive Margin; Financial Frictions; Financial Accelerator;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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