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    Macroeconomic effects of firms’ underspending in times of abundant credit

    Samiri, Issam (2021) Macroeconomic effects of firms’ underspending in times of abundant credit. Working Paper. Birkbeck Centre for Applied Macroeconomics, London, UK.

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    Abstract

    Firms typically decide their financing before starting the implementation of a new project. The firm’s management may become more pessimistic about the project’s profitability after financing is raised and reduce spending accordingly. Following an unpredicted negative aggregate productivity shock, the productive sector can enter a low spending mode, thus depressing output further. I use firm-level financial data to provide some empirical justification for this mechanism. I then study the mechanism in a general equilibrium model with money and a supply sector subject to uninsured idiosyncratic productivity shocks. The model reproduces many features of the post-2008 period: large effects of real shocks on output and investment, a less effective expansive monetary policy that is accompanied by high shareholders cash payouts.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM Working Paper #2102. ISSN: 1745-8587
    Keyword(s) / Subject(s): DSGE, Firms’ spending, Financial Frictions, Productivity, Occasionally Binding Constraints, Dividends, Share buybacks, Great Recession
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centres and Institutes: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Isobel Edwards
    Date Deposited: 29 Mar 2021 15:40
    Last Modified: 18 Jun 2021 18:22
    URI: https://eprints.bbk.ac.uk/id/eprint/42575

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