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Entry and Exit with Financial Frictions

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  • Patrick Macnamara

Abstract

This paper considers a model of firm dynamics to study how well aggregate shocks account for fluctuations in the entry and exit of establishments. To do this, I construct measures of aggregate financial and technology shocks. Under reasonable parameters, the model indicates that financial shocks (and not technology shocks) have contributed to the majority of cyclical fluctuations in entry and exit rates. In particular, the reduction in entry and the increase in exit during the 2007-09 recession have contributed to the slow recovery of output and hours that followed.

Suggested Citation

  • Patrick Macnamara, 2014. "Entry and Exit with Financial Frictions," Centre for Growth and Business Cycle Research Discussion Paper Series 193, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:193
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    File URL: https://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr193.pdf
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    Cited by:

    1. Patrick Macnamara, 2015. "Limited Re-Entry And Business Cycles," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(4), pages 1-40, December.
    2. Paul Bergin & Ling Feng & Ching-Yi Lin, 2014. "Financial Frictions and Firm Dynamics," NBER Working Papers 20099, National Bureau of Economic Research, Inc.
    3. Uusküla, Lenno, 2016. "Monetary transmission mechanism with firm turnover," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 1-18.
    4. Stolbov, Mikhail & Shchepeleva, Maria, 2020. "Systemic risk, economic policy uncertainty and firm bankruptcies: Evidence from multivariate causal inference," Research in International Business and Finance, Elsevier, vol. 52(C).
    5. Lenno Uuskula, 2015. "Firm turnover and inflation dynamics," Bank of Estonia Working Papers wp2015-01, Bank of Estonia, revised 03 Feb 2015.
    6. Ji, Yu & Shi, Lina & Zhang, Shunming, 2022. "Digital finance and corporate bankruptcy risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).

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