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Aggregate business failures and macroeconomic conditions: A VAR look at the U.S. between 1980 and 2004

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Abstract

In this paper, we study the U.S. aggregate business failures during 1980- 2004 in relation to four macroeconomic variables: aggregate corporate profits, the producer price index, the interest rate, and stock market performance. We argue that aggregate business failures should not be treated as a passive variable, as usually done in previous studies, and we allow its possible causal effect on other macroeconomic variables through a Structural Vector Autoregression model that builds on Directed Acyclic Graphs. Granger type causality and innovation accounting results both show that while subject to the influence of interest rates, aggregate business failures are quite exogenous in comparison to the other three variables. The implications of these findings are discussed as well.

Suggested Citation

  • Jin Zhang & David A. Bessler & David J. Leatham, 2013. "Aggregate business failures and macroeconomic conditions: A VAR look at the U.S. between 1980 and 2004," Journal of Applied Economics, Universidad del CEMA, vol. 16, pages 179-202, May.
    • Handle: RePEc:cem:jaecon:v:16:y:2013:n:1:p:179-202
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    File URL: https://ucema.edu.ar/publicaciones/download/volume16/zhang.pdf
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    Cited by:

    1. Rémi Stellian & Gabriel I. Penagos & Jenny P. Danna-Buitrago, 2021. "Firms in financial distress: evidence from inter-firm payment networks with volatility driven by ‘animal spirits’," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(1), pages 59-101, January.
    2. Edeoba William Edobor & Maria I. Marshall, 2021. "Earth, wind, water, fire and man: How disasters impact firm births in the USA," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 107(1), pages 395-421, May.
    3. Sanjay Sehgal & Ritesh Kumar Mishra & Ajay Jaisawal, 2021. "A search for macroeconomic determinants of corporate financial distress," Indian Economic Review, Springer, vol. 56(2), pages 435-461, December.
    4. Rémi Stellian & Jenny P. Danna‐Buitrago, 2020. "Financial distress, free cash flow, and interfirm payment network: Evidence from an agent‐based model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(4), pages 598-616, October.

    More about this item

    Keywords

    business failures; macroeconomic conditions; directed acyclic graphs; vector autoregression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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