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Productivity losses from financial frictions: can self-financing undo capital misallocation?

Moll, Benjamin (2014) Productivity losses from financial frictions: can self-financing undo capital misallocation? American Economic Review, 104 (10). 3186 - 3221. ISSN 0002-8282

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Identification Number: 10.1257/aer.104.10.3186

Abstract

I develop a highly tractable general equilibrium model in which heterogeneous producers face collateral constraints, and study the effect of financial frictions on capital misallocation and aggregate productivity. My economy is isomorphic to a Solow model but with time-varying TFP. I argue that the persistence of idiosyncratic productivity shocks determines both the size of steady-state productivity losses and the speed of transitions: if shocks are persistent, steady-state losses are small but transitions are slow. Even if financial frictions are unimportant in the long run, they tend to matter in the short run and analyzing steady states only can be misleading.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2014 The Authors
Divisions: Economics
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Date Deposited: 05 Nov 2019 15:51
Last Modified: 20 Jan 2020 07:07
URI: http://eprints.lse.ac.uk/id/eprint/102386

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