Publication Type
Journal Article
Version
submittedVersion
Publication Date
3-2008
Abstract
We address an important business cycle fact, i.e., the amplified and hump-shaped responses of output to productivity shocks, in a dynamic general equilibrium model with financial frictions. Models with financial frictions in the current literature have either the amplification mechanism or the propagation mechanism. Our model shows that the dynamic interaction of borrowing constraints, endogenous capital accumulation, and capital reallocation among agents with different productivity constitutes a mechanism through which the effects of productivity shock on aggregate output are amplified and propagated, more in line with the empirical evidence than other related models in the literature.
Keywords
Amplification, Business cycles, Capital reallocation, Financial frictions, Propagation
Discipline
Economic Theory | Finance | Industrial Organization
Research Areas
Macroeconomics
Publication
Journal of Economic Dynamics and Control
Volume
32
Issue
3
First Page
978
Last Page
999
ISSN
0165-1889
Identifier
10.1016/j.jedc.2007.04.003
Publisher
Elsevier
Citation
Von Hagen, Jürgen and ZHANG, Haiping.
Financial Frictions, Capital Reallocation, and Aggregate Fluctuations. (2008). Journal of Economic Dynamics and Control. 32, (3), 978-999.
Available at: https://ink.library.smu.edu.sg/soe_research/185
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jedc.2007.04.003