Liquidity, Innovation, and Endogenous Growth∗
نویسندگان
چکیده
We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that while financing frictions prompt firms to decrease production, they may also spur investment in innovation. We examine which types of firms substitute production for innovation in response to negative operating shocks that decrease cash availability. We embed our firm dynamics into a model of endogenous growth and show that financing frictions have contrasting effects on economic growth.
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Wright thanks the Bank of Canada for their hospitality, as well as the NSF and the Ray Zemon Chair in Liquid Assets at the Wisconsin School of Business for support. The views expressed here do not necessarily reflect the position of the Bank of Canada, the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research. NBER working papers are circul...
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