Abstract:
Based on China's Annual Industrial Survey, the empirical research shows that the financing constraints faced by efficient enterprises are tighter than those of inefficient enterprises. According to the above empirical results, this paper develops a DSGE model with heterogeneous efficiency firms and financial frictions. Due to financial frictions, efficient firms face tighter financing constraints, resulting in aggregate resource misallocation. The exogenous technology shock and financial shock change the financing constraints of firms, leading to resource reallocation among firms, and amplify economic fluctuations. Numerical simulation confirms the resource reallocation mechanism of financial frictions, and the reduction of financial frictions and financial intermediation costs can alleviate the effect of exogenous shocks on economic fluctuations.
Ai, Hengjie, Li Kai and Yang Fang, 2015, “Financial Intermediation and Capital Misallocation” Unpublished manuscript, University of Minnesota.
[26]
Bai, Yan, Lu Dan and Tian Xu, 2016, “Do Financial Frictions Explain Chinese Firm Saving and Misallocation?” Unpublished manuscript.
[27]
Bernanke, Ben S., Gertler Mark and Gilchrist Simon, 1999, “The Financial Accelerator in A Quantitative Business Cycle Framework” Handbook of Macroeconomics, 1:1341~1393.
[28]
Chari, Varadarajan V., Kehoe Patrick J. and McGrattan Ellen R., 2007, “Business Cycle Accounting” Econometrica, 75(3):781~836.
[29]
Chen, Kaiji and Song Zheng, 2013, “Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations” Journal of Monetary Economics, 60(6):683~703.
[30]
Christiano, Lawrence J., Motto Roberto and Rostagno Massimo, 2014, “Risk shocks” American Economic Review, 104(1):27~65.
[31]
Hsieh, Chang-Tai and Klenow Peter J., 2009, “Misallocation and Manufacturing TFP in China and India” Quarterly Journal of Economics, 124(4):1403~1448.
[32]
Jermann, Urban and Quadrini Vincenzo, 2012, “Macroeconomic Effects of Financial Shocks” American Economic Review, 102(1):238~271.
[33]
Kiyotaki, N. and Moore, J., 1997, “Credit Cycles” Journal of Political Economy, 105(2): 211~248.
[34]
Kocherlakota Narayana, 2000, “Creating Business Cycles through Credit Constraints” Federal Reserve Bank of Minneapolis Quarterly Review, 24(3):2~10.
[35]
Liu, Zheng and Wang Pengfei, 2014, “Credit Constraints and Self-Fulfilling Business Cycles” American Economic Journal: Macroeconomics, 6(1):32~69.
[36]
Olley, G. Steven and Pakes Ariel, 1996, “The Dynamics of Productivity in the Telecommunications Equipment Industry” Econometrica, 64(6):1263~1297.
[37]
Restuccia, D. And Rogerson R., 2008, “Policy Distortions and Aggregate Productivity with Heterogeneous Plants” Review of Economic Dynamics,1(1):707~720.
[38]
Roodman, David, 2009, “How to Do Xtabond2: An Introduction to Difference and System GMM in Stata” Stata Journal, 9(1):86~136.
