Are There Any Spillovers between Household and Firm Financing Frictions? A Dynamic General Equilibrium Analysis
نویسنده
چکیده
Economic commentators frequently imply the existence of positive spillovers between the nancing frictions a¤ecting households and rms, suggesting another way in which credit constraints may amplify aggregate shocks and increase the persistence of aggregate uctuations. To examine this possibility, I develop a new model that incorporates both rm and household external nance spreads while improving in several dimensions on existing frameworks. Contrary to a common intuition, the baseline Real Business Cycle model with credit constraints produces small negative spillovers between the costs of external nancing for rms and households. The key factor in this result is the income e¤ect of changes in the external nance premium on borrower labour supply. The reduction in householdscost of borrowing in a boom decreases labour supply, increases the risk free interest rate and crowds out investment, raising borrowing costs for nancially constrained rms. JEL classi cation: E3, E4, G3. Key words: Financial frictions, external nance premium, business cycles. . 0I would like to thank my supervisors Francisco Ruge-Murcia and Onur Ozgur, as well as Matthieu Darracq Paries and seminar participants at the European Central Bank for helpful discussions and advice. All remaining errors are my own. 0Department of Economics, Universite de Montreal and CIREQ. email:[email protected]
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