Arbeitspapier

Firm exit during recessions

We analyze a general equilibrium model of firm dynamics to study the effects of shocks to productivity, labor wedge, and collateral constraint (credit shock) on firm exit. We find that only the credit shock increases firm exit. This result is robust to the magnitude of shocks and different model specifications. Calibrating the model to match the behavior of output, employment, and firm debt during the Great Recession (2007-2009) in the United States, we find that the credit shock accounts for the observed rise in firm exit and its concentration among young firms. Furthermore, it accounts for 20 percent of the drop in output and employment.

Language
Englisch

Bibliographic citation
Series: IDB Working Paper Series ; No. IDB-WP-1117

Classification
Wirtschaft
Firm Behavior: Theory
Firm Behavior: Empirical Analysis
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
Subject
Credit
Firm dynamics
General equilibrium model
Output
Employment

Event
Geistige Schöpfung
(who)
Ayres, Joao
Raveendranathan, Gajendran
Event
Veröffentlichung
(who)
Inter-American Development Bank (IDB)
(where)
Washington, DC
(when)
2020

DOI
doi:10.18235/0002289
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Ayres, Joao
  • Raveendranathan, Gajendran
  • Inter-American Development Bank (IDB)

Time of origin

  • 2020

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