Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?

Moll, Benjamin

doi:10.1257/aer.104.10.3186

Cited by 667 publications

(530 citation statements)

References 67 publications

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“…13 Moll (2014) shows how to extend the environment to the case where shocks are persistent at the expense of some extra notation and mathematical complication. Persistent shocks generate some additional endogenous dynamics for aggregate total factor productivity, but the qualitative properties of the decentralized equilibrium are otherwise unchanged.…”

Section: Entrepreneursmentioning

confidence: 99%

“…Persistent shocks generate some additional endogenous dynamics for aggregate total factor productivity, but the qualitative properties of the decentralized equilibrium are otherwise unchanged. As explained in Moll (2014), an iid process in continuous time can also be viewed as the limit of a mean-reverting process as the speed of mean reversion goes to infinity.…”

Section: Entrepreneursmentioning

confidence: 99%

“…15 At the same time, the particular formulation of the constraint is analytically convenient and allows us to derive most of our results in closed form. As shown in Moll (2014), the constraint could also be generalized in a number of ways at the expense of some extra notation. 16 We can also allow for evolution of λ over time, and show below that this is isomorphic to changes in the exogenous aggregate productivity, A.…”

Section: Entrepreneursmentioning

confidence: 99%

“…Second, we focus on interventions that distort labor supply, whereas they focus on interventions that distort consumption across sectors. Third, we study a different framework, building on Moll (2014), which follows the tradition of the macro-development literature and departs minimally from the neoclassical growth model by introducing financial frictions, and is therefore particularly well-suited for studying transition dynamics. 8 Another related paper by Angeletos, Collard, Dellas, and Diba (2013) studies Ramsey policies in a setup with heterogeneous producers and within-period liquidity constraints, but their focus on optimal public debt management as supply of collateral is very different from ours.…”

Section: Introductionmentioning

confidence: 99%

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Optimal Development Policies with Financial Frictions

Itskhoki¹,

Moll²

2014

Self Cite

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We study optimal dynamic Ramsey policies in a standard growth model with financial frictions. For developing countries with low financial wealth, the optimal policy intervention increases labor supply and lowers wages, resulting in higher entrepreneurial profits and faster wealth accumulation. This in turn relaxes borrowing constraints in the future, leading to higher labor productivity and wages. The use of additional policy instruments, such as subsidized credit, may be optimal as well. In the long run, the optimal policy reverses sign. Taking advantage of the tractability of our framework, we extend the model to study its implications for optimal exchange rate and sectoral industrial policies.

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Section: Entrepreneursmentioning

confidence: 99%

Section: Entrepreneursmentioning

confidence: 99%

Section: Entrepreneursmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Optimal Development Policies with Financial Frictions

Itskhoki¹,

Moll²

2014

Self Cite

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“…Our model is also related to an extensive series of papers on the effect of idiosyncratic investment risk on firm dynamics and its financial structure including Cooley and Quadrini (2001), Hennessy and Whited (2005), and Angeletos (2007) to name a few. Our modelling approach is also similar to an extensive literature that analyzes the effects of financial frictions on misallocation and Total Factor Productivity, such as Midrigan and Xu (2010), Buera et al (2011), andMoll (2011). While our basic model is very similar, aside from inclusion of monopolistic competition and intermediate goods as inputs, we focus on short-term dynamics of the model.…”

Section: Introductionmentioning

confidence: 99%

External financing and the role of financial frictions over the business cycle: Measurement and theory

Shourideh

Zetlin‐Jones

2017

Journal of Monetary Economics

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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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How can China's sustainable development be damaged in consequence of financial misallocation? Analysis from the perspective of regional innovation capability

Long

Zhu

et al. 2022

Bus Strat Env

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China's extensive economic growth has been accompanied with high levels of pollution, and excessive energy consumption has brought serious pollution problems. The use of financial resources to regulate green production modes and encourage high‐quality economic development has become a major focus in academia. At the same time, growth enterprise market (GEM) enterprises, which mainly operate in technology‐intensive industries, are assumed to have a simulating effect on regional innovation. Therefore, this paper utilizes the capital return differences of 4437 listed companies and 920 GEM companies based in 30 provinces of China from 2008 to 2018 to quantitatively analyze the levels of financial misallocation. With two‐stage regression method, the direct effect of financial misallocation on regional green total factor energy efficiency (GTFEE) and the indirect impact observed when taking regional innovation as an intermediary variable are discussed. Furthermore, dynamic threshold panel regression and heterogeneity analysis are used to verify the above nonlinear relationship. The empirical findings indicate that financial misallocation enhances innovation capability and further restrains GTFEE. With an improved degree of marketization and environmental regulation, the inhibitory effect of financial misallocation on GTFEE is more significant.

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Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?

Cited by 667 publications

References 67 publications

Optimal Development Policies with Financial Frictions

Optimal Development Policies with Financial Frictions

External financing and the role of financial frictions over the business cycle: Measurement and theory

How can China's sustainable development be damaged in consequence of financial misallocation? Analysis from the perspective of regional innovation capability

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