Faculty of Economics and Business Administration Publications Database

Firm volatility and credit: a macroeconomic analysis

Pages: 95 - 106
Month: March
Link External Source: Online Version
Year: 2009

This paper examines a tractable real business cycle model with idiosyncratic productivity shocks and binding credit constraints on entrepreneurs. The model shows how firm volatility increases in combination with credit market development. It further generates the observed comovement of credit and firm volatility with output at business cycle frequencies in response to aggregate productivity shocks.