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

Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection† AbstractWe 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) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

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

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

American Economic Journal: Macroeconomics , Volume 13 (3) – Jul 1, 2021

Abstract

AbstractWe 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)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180014
Publisher site
See Article on Publisher Site

Abstract

AbstractWe 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)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2021

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