Credit Crunches and Credit Allocation in a Model of Entrepreneurship
51 Pages Posted: 6 Aug 2013
There are 2 versions of this paper
Credit Crunches and Credit Allocation in a Model of Entrepreneurship
Credit Crunches and Credit Allocation in a Model of Entrepreneurship
Date Written: July 31, 2013
Abstract
We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business in this set-up, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.
Keywords: Entrepreneurship, Credit Contraints, Credit Crunch, Financial Crisis
JEL Classification: E2, E6, H2
Suggested Citation: Suggested Citation
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