Work

Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection

Year: 2021

Type: article

Abstract: We develop a tractable quantitative framework to study the productivity effects of financial crises. The model features endogenous productivity, heterogeneous firm dynamics, and aggregate risk. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop triggered by the Russian sovereign default in 1998 confirm the model’s main mechanism, as firms born during the credit shortage are fewer but better in terms of idiosyncratic productivity. The quantitative analysis shows that at the end of the crisis, total output is permanently 0.9 percent lower. (JEL D22, E32, F41, G01, O11, O14, O33)

Source: American Economic Journal Macroeconomics

DOI: 10.1257/mac.20180014

Authors: Sina T. Ates, Felipe E. Saffie

Institutions: Federal Reserve Board of Governors, University of Virginia

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W2160639852