Financial frictions and the extensive margin of activity
Poutineau, Jean-Christophe; Vermandel, Gauthier (2015), Financial frictions and the extensive margin of activity, Research in Economics, 69, 4, p. 525-554. 10.1016/j.rie.2015.09.005
TypeArticle accepté pour publication ou publié
Journal nameResearch in Economics
MetadataShow full item record
Centre de recherche en économie et management [CREM]
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)This paper evaluates the role of financial intermediaries, such as banks, in the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms operating on the goods market with financial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to finance spendings during the setting period. This model is estimated on US data between 1993Q1 and 2012Q3. We get three main results. First, financial frictions play a key role in determining the number of new firms. 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 effect 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 firms. In the long run, the variance of the effective entry share is almost explained by supply shocks.
Subjects / KeywordsExtensive margin; Financial frictions; Financial accelerator; DSGE model; Bayesian estimation
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