Financial frictions, capital reallocation, and aggregate fluctuations

Arbeitspapier

We address an important business cycle fact, i.e., the amplified and hump-shaped responses of output to productivity shocks, in a dynamic general equilibrium model with financial frictions. Models with financial frictions in the current literature have either the amplification mechanism or the propagation mechanism. Our model shows that the dynamic interaction of borrowing constraints, endogenous capital accumulation and capital reallocation among agents with different productivity constitutes a mechanism through which the effects of productivity shock on aggregate output are amplified and propagated, more in line with the empirical evidence than other related models in the literature.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEI Working Paper ; No. B 03-2006

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy
• Subject: Amplification ; Business cycles ; Capital reallocation ; Financial frictions ; Propagation ; Konjunkturtheorie ; Investition ; Verschuldungsrestriktion ; Agency Theory ; Real Business Cycle ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): von Hagen, Jürgen ; Zhang, Haiping
• Event: Veröffentlichung
• (who): Rheinische Friedrich-Wilhelms-Universität Bonn, Zentrum für Europäische Integrationsforschung (ZEI)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/39643
• Last update: 10.03.2025, 11:42 AM CET