It has been well documented that the cyclical adjustment of labor input chiefly represents movement of workers into and out of employment, rather than adjustment of hours at given jobs. Thus, in understanding business cycles, it is centrally important to understand the formation and breakdown of employment relationships. The nature of employment adjustments over the cycle has also received close scrutiny. Evidence from a number of sources indicates that recessionary employment reductions are accounted for by elimination of preexisting jobs, i.e., job destruction, to a greater extent than by diminished creation of new jobs. Substantial cyclical variation in the rate of job destruction suggests that closer consideration of the breakdown of employment relationships may help to explain how shocks to the economy generate large and persistent output fluctuations. 1 This paper addresses these issues by studying the endogenous breakup of employment relationships in a dynamic general-equilibrium model with labor-market matching. Production is assumed to entail long-term relationships between workers and firms. We consider a version of Dale T. Mortensen and Christopher A. Pissarides' (1994) model, wherein a worker and firm who are currently matched must decide each period whether to preserve or sever their relationship, based on their current-period productivity. By altering the trade-off between match preservation and severance, aggregate productivity shocks induce fluctuations in the job-destruction rate, thereby exerting effects on output that go beyond those resulting from productivity variations in continuing relationships. We embed the basic Mortensen-Pissarides mechanism into a full dynamic general-equilibrium model, analyze the role of fluctuations in the job-destruction rate in propagating shocks, and assess the model's quantitative implications.Most business-cycle models in the realbusiness-cycle (RBC) tradition share the feature that model-generated output data exhibit dynamic characteristics nearly identical to those of the underlying exogeneous shocks, so that economic mechanisms play a minimal role in propagating shocks (Timothy Cogley and James M. Nason, 1993Nason, , 1995Julio J. Rotemberg and Michael Woodford, 1996). In our model, however, fluctuations in the job-destruction rate give rise to a significant propagation mechanism: productivity shocks are magnified in their effect on output at the point of impact, and the persistence of output effects is greatly increased. Using simulated data from a calibrated version of the model, we find that the standard deviation of output is roughly two and one-half times larger than the standard deviation of the
Debt and equity issuance are procyclical for most size-sorted firm categories of listed US firms and the procyclicality of equity issuance decreases monotonically with firm size. At the aggregate level, however, the results for equity issuance are not conclusive due to different behavior of the largest firms, especially those in the top one percent. During a deterioration in economic conditions, firms limit the impact of the reduction in external financing on investment by shedding financial assets. This is true for a worsening in aggregate as well as firm-specific conditions. (JEL E32, G32, L11, L25)
This paper investigates the portfolio behavior of bank loans following a monetary tightening. We find that real estate and consumer loans sharply decrease, while commercial and industrial (C&I) loans increase. We compare this behavior with the responses following non-monetary shocks, which also reduce output but keep interest rates roughly unchanged. During such a "non-monetary" downturn, C&I loans sharply decrease, while real estate and consumer loans show no substantial response. These responses, together with the responses of relevant lending rates, are hard to reconcile with a decline in the supply of C&I bank loans during a monetary downturn as stressed by the bank-lending channel. Instead, we give several arguments why the supply of C&I loans may actually increase after a monetary contraction.JEL codes: E40
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