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.
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