Financial Factors in Business Fluctuations
59 Pages Posted: 23 Apr 2004 Last revised: 17 Jul 2022
Date Written: November 1988
Abstract
Recent research in macroeconomics -- both theoretical and empirical -- has resurrected the idea that capital market imperfections may be significant factors in business volatility by making new progress in characterizing the mechanisms. This paper outlines a case for a financial aspect to business fluctuations, in light of the contributions of this new literature. We present a theoretical model that explicitly motivates how financial factors may affect investment. We then report some existing tests of the model's basic predictions4 and also present two new sets of results. The first demonstrates that the inverse relation between sales variability and size documented in many studies may be due to financial rather than technological factors, in contrast to the conventional view. The second lends support to a theoretical prediction of the model. that the effects of capital market frictions on investment should be asymmetric -- having more impact in recessions than booms. The final section presents conclusions, and addresses some policy questions.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Federal Funds Rate and the Channels of Monetary Transnission
By Ben S. Bernanke and Alan S. Blinder
-
Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms
By Mark Gertler and Simon Gilchrist
-
Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance
By Anil K. Kashyap, David W. Wilcox, ...
-
Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance
By Anil K. Kashyap, Jeremy C. Stein, ...
-
Credit, Money, and Aggregate Demand
By Ben S. Bernanke and Alan S. Blinder
-
The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds
By Lawrence J. Christiano, Martin Eichenbaum, ...
-
Some Empirical Evidence on the Effects of Monetary Policy Shocks on Exchange Rates
-
Monetary Policy and Bank Lending
By Anil K. Kashyap and Jeremy C. Stein
-
The Impact of Monetary Policy on Bank Balance Sheets
By Anil K. Kashyap and Jeremy C. Stein