Credit crunches and credit allocation in a model of entrepreneurship

Marco Bassetto; Marco Cagetti; Mariacristina De Nardi

doi:10.1016/j.red.2014.08.003

Credit crunches and credit allocation in a model of entrepreneurship

Marco Bassetto, Marco Cagetti, Mariacristina De Nardi

Research output: Contribution to journal › Article › peer-review

31 Scopus citations

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.

Original language	English (US)
Pages (from-to)	53-76
Number of pages	24
Journal	Review of Economic Dynamics
Volume	18
Issue number	1
DOIs	https://doi.org/10.1016/j.red.2014.08.003
State	Published - Jan 1 2015
Externally published	Yes

Bibliographical note

Publisher Copyright:
© 2014 The Authors.

Keywords

Borrowing constraints
Credit allocation
Credit crunches
D58
E21
E22
E32
E44
E62
Entrepreneurship
Wealth inequality

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access

10.1016/j.red.2014.08.003

OpenUrl availability

Full text

Cite this

@article{6e104bae1232429fb69e7a93672c3f8b,

title = "Credit crunches and credit allocation in a model of entrepreneurship",

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.",

keywords = "Borrowing constraints, Credit allocation, Credit crunches, D58, E21, E22, E32, E44, E62, Entrepreneurship, Wealth inequality",

author = "Marco Bassetto and Marco Cagetti and {De Nardi}, Mariacristina",

note = "Publisher Copyright: {\textcopyright} 2014 The Authors.",

year = "2015",

month = jan,

day = "1",

doi = "10.1016/j.red.2014.08.003",

language = "English (US)",

volume = "18",

pages = "53--76",

journal = "Review of Economic Dynamics",

issn = "1094-2025",

publisher = "Academic Press Inc.",

number = "1",

}

TY - JOUR

T1 - Credit crunches and credit allocation in a model of entrepreneurship

AU - Bassetto, Marco

AU - Cagetti, Marco

AU - De Nardi, Mariacristina

PY - 2015/1/1

Y1 - 2015/1/1

N2 - 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.

AB - 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.

KW - Borrowing constraints

KW - Credit allocation

KW - Credit crunches

KW - D58

KW - E21

KW - E22

KW - E32

KW - E44

KW - E62

KW - Entrepreneurship

KW - Wealth inequality

UR - http://www.scopus.com/inward/record.url?scp=84923025567&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84923025567&partnerID=8YFLogxK

U2 - 10.1016/j.red.2014.08.003

DO - 10.1016/j.red.2014.08.003

M3 - Article

AN - SCOPUS:84923025567

SN - 1094-2025

VL - 18

SP - 53

EP - 76

JO - Review of Economic Dynamics

JF - Review of Economic Dynamics

IS - 1

ER -

Credit crunches and credit allocation in a model of entrepreneurship

Abstract

Bibliographical note

Keywords

UN SDGs

Access

OpenUrl availability

Other files and links

Fingerprint

Cite this