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Liquidity Flows and Fragility of Business Enterprises / Wouter den Haan, Garey Ramey, Joel Watson.
- Format:
- Book
- Author/Creator:
- den Haan, Wouter.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w7057.
- NBER working paper series no. w7057
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1999.
- Summary:
- This paper considers the efficiency of financial intermediation and the propagation of business cycle shocks in a model of long-term relationships between entrepreneurs and lenders lenders may be constrained in their short-run access to liquidity. When liquidity is low, relationships are subject to breakups that lead to loss of joint surplus. Liquidity outflows cause damage to financial structure by breaking up relationships, and damage persists due to frictions in the formation of new relationships. Feedbacks between aggregate investment and the structure of intermediation greatly magnify the effects of shocks. For large shocks, financial collapse may become inescapable in the absence of external intervention.
- Notes:
- Print version record
- March 1999.
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