Creator: Kehoe, Timothy Jerome, 1953-, Pujolas, Pau S., and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 533 Abstract:
We show that a trade model with an exogenous set of heterogeneous firms with fixed operating costs has the same aggregate outcomes as a span-of-control model. Fixed costs in the heterogeneous-firm model are entrepreneurs' forgone wage in the span-of-control model.
Stichwort: Span-of-control model, Firm heterogeneity, Income distribution, and International trade Fach: D31 - Personal Income, Wealth, and Their Distributions, D43 - Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection, and F12 - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
Creator: Arellano, Cristina, Bai, Yan, Bocola, Luigi, and test Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 547 Abstract:
This paper measures the output costs of sovereign risk by combining a sovereign debt model with firm- and bank-level data. In our framework, an increase in sovereign risk lowers the price of government debt and has an adverse impact on banks’ balance sheets, disrupting their ability to finance firms. Importantly, firms are not equally affected by these developments: those that have greater financing needs and borrow from banks that are more exposed to government debt cut their production the most in a debt crisis. We measure the extent of this heterogeneity using Italian data and parameterize the model to match these cross-sectional facts. In counterfactual analysis, we find that heightened sovereign risk was responsible for one-third of the observed output decline during the 2011-2012 crisis in Italy.
Stichwort: Sovereign debt crises, Firm heterogeneity, Financial intermediation, Business cycles, and Micro data Fach: E44 - Financial Markets and the Macroeconomy, F34 - International Lending and Debt Problems, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, and G15 - International Financial Markets
Creator: Arellano, Cristina, Bai, Yan, and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 466 Abstract:
The U.S. 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. Out model can generate most of the decline in output and labor in the Great Recession and the observed increase in firms' interest rate spreads.
Stichwort: Credit constraints, Credit crunch, Firm heterogeneity, Firm credit spreads, Labor wedge, Great Recession, and Uncertainty shocks Fach: E23 - Macroeconomics: Production, E44 - Financial Markets and the Macroeconomy, E32 - Business Fluctuations; Cycles, D53 - General Equilibrium and Disequilibrium: Financial Markets, D52 - Incomplete Markets, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity