Arellano, C;
Bai, Y;
Kehoe, PJ;
(2019)
Financial Frictions and Fluctuations in Volatility.
Journal of Political Economy
, 127
(5)
pp. 2049-2103.
10.1086/701792.
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Abstract
The US Great Recession featured a large decline in output and labor, tighter financial conditions, and a large increase in firm growth dispersion. We build a model in which increased volatility at the firm level generates a downturn and worsened credit conditions. The key idea is that hiring inputs is risky because financial frictions limit firms’ ability to insure against shocks. An increase in volatility induces firms to reduce their inputs to reduce such risk. Our model can generate most of the decline in output and labor in the Great Recession and the observed increase in firms’ interest rate spreads.
| Type: | Article |
|---|---|
| Title: | Financial Frictions and Fluctuations in Volatility |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1086/701792 |
| Publisher version: | https://doi.org/10.1086/701792 |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10054390 |
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