A1 - Thomas Brand
A1 - Marlène Isoré
A1 - Fabien Tripier
TI - Uncertainty Shocks and Firm Creation: Search and Monitoring in the Credit Market
IS - 2018-19
T3 - Working Papers
KW - Uncertainty
KW - Financial frictions
KW - Search and matching
KW - Business cycle
KW - Firm creation
N2 - We develop a business cycle model where endogenous firm creation stems from two credit market frictions. First, entrepreneurs search for a lending relationship with a bank. Second, an optimal debt contract with monitoring is implemented. We analyze the interplay between both frictions, and embed it into an otherwise standard business cycle model, which we estimate with Bayesian techniques. We find that uncertainty shocks are a prime contributor to business cycle fluctuations in the US, not only for macro-financial aggregates but also for firm creation. Moreover, we point out that the credit search friction dampens the financial accelerator mechanism because default may imply the end of the lending relationship.
ER -