Asset Prices and Business Cycles with Financial Shocks

Nezafat, Pedram; Slavík, Ctirad

doi:10.2139/ssrn.1571754

Cited by 27 publications

(20 citation statements)

References 53 publications

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“…This helps us impose further discipline on our model of financial frictions and firm heterogeneity and the mechanisms that translate financial shocks to the real economy. Our paper is also related to a number of studies that focus on how presence of financial frictions amplify and propagate the effect of productivity shocks to the economy such as Khan and Thomas (2011) and Nezafat and Slavık (2011). Furthermore, our transitional dynamic exercise is very similar to Guerrieri and Lorenzoni (2011), however, they focus on changes in household's borrowing opportunities while we focus on the production side of the economy.…”

Section: Introductionmentioning

confidence: 99%

External Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory

Shourideh

Zetlin‐Jones

2012

SSRN Journal

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We examine the quantitative importance of financial market shocks in accounting for business cycle fluctuations. We emphasize the role financial markets play in reallocating funds from cash-rich, low productivity firms to cash-poor, high productivity firms. Using evidence on financial flows at the firm level, we find that for publicly traded firms (in Compustat), almost all investment is financed internally. However, using an alternative data source (Amadeus), we find that most investment by privately held firms is financed through borrowing. Motivated by these observations, we build a quantitative model featuring publicly and privately held firms that face collateral constraints and idiosyncratic risk over productivity as well as non-financial linkages. In our calibrated model, we find that a shock to the collateral constraints which generates a one standard deviation decline in the debt-to-asset ratio leads to a 0.5% decline in aggregate output on impact, roughly comparable to the effect of a one standard deviation shock to aggregate productivity in a standard real business cycle model. In this sense, we find that disturbances in financial markets are a promising source of business cycle fluctuations when non-financial linkages across firms are sufficiently strong. * We are indebted to V.V. Chari and Larry Jones for valuable advice. We would also like to thank

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Section: Introductionmentioning

confidence: 99%

External Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory

Shourideh

Zetlin‐Jones

2012

SSRN Journal

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“…Financial constraints do amplify shocks that shift the demand of collateral (Liu et al (2010)). Nezafat and Slavik (2010) find that such shocks are capable of generating asset price volatility in the model comparable to that of the aggregate stock market in the data. the economy.…”

Section: Introductionmentioning

confidence: 60%

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

Negro

Eggertsson

Ferrero

et al. 2017

American Economic Review

176

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in

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“…The three parameters,

(θ, μ^{*}, φ^{*})

, describe financial frictions. The target for θ comes from the evidence in Nezafat and Slavik (). Using the U.S. Flow of Funds, these authors construct a time series for the ratio of funds raised in the market to investment expenditure by nonfarm nonfinancial corporate firms.…”

Section: Quantitative Analysis On the Effect Of Financial Shocksmentioning

confidence: 99%

Financial Frictions, Investment Delay, and Asset Market Interventions

Shi¹,

Tewfik

2015

J of Money Credit Banking

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We construct a dynamic macro model to incorporate financial frictions and investment delay. Investment is undertaken by entrepreneurs who face liquidity frictions in the equity market and a collateral constraint in the debt market. After calibrating the model to the U.S. data, we quantitatively examine how aggregate activity is affected by a shock to equity liquidity and a shock to entrepreneurs' borrowing capacity. We then analyze the effectiveness of government interventions in the asset market after such financial shocks. In particular, we compare the effects of government purchases of private equity and of private debt in the open market. In addition, we examine how these effects of government interventions depend on the option to delay investment.JEL codes: E3, E5

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Asset Prices and Business Cycles with Financial Shocks

Cited by 27 publications

References 53 publications

External Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory

External Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

Financial Frictions, Investment Delay, and Asset Market Interventions

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