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Credit crunches and credit allocation in a model of entrepreneurship

Bassetto, M; Cagetti, M; De Nardi, M; (2015) Credit crunches and credit allocation in a model of entrepreneurship. REVIEW OF ECONOMIC DYNAMICS , 18 (1) 53 - 76. 10.1016/j.red.2014.08.003. Green open access

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Abstract

We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.

Type: Article
Title: Credit crunches and credit allocation in a model of entrepreneurship
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.red.2014.08.003
Publisher version: http://dx.doi.org/10.1016/j.red.2014.08.003
Additional information: Copyright © 2015 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license
Keywords: Credit crunches, Credit allocation, Entrepreneurship, Borrowing constraints, Wealth inequality
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
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1465406
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