Author : Daniel Garcia-Macia
Publisher : International Monetary Fund
ISBN 13 : 1484311132
Total Pages : 52 pages
Book Rating : 4.4/5 (843 download)
Book Synopsis The Financing of Ideas and the Great Deviation by : Daniel Garcia-Macia
Download or read book The Financing of Ideas and the Great Deviation written by Daniel Garcia-Macia and published by International Monetary Fund. This book was released on 2017-07-31 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why did the Great Recession lead to such a slow recovery? I build a model where heterogeneous firms invest in physical and intangible capital, and can default on their debt. In case of default, intangible assets are harder to seize by creditors. Hence, intangible capital faces higher financing costs. This differential is exacerbated in a financial crisis, when default is more likely and aggregate risk bears a higher premium. The resulting fall in intangible investment amplifies the crisis, and gradual intangible spillovers to other firms contribute to its persistence. Using panel data on Spanish manufacturing firms, I estimate the model matching firm-level moments regarding intangibles and financing. The model captures the extent and components of the Great Recession in Spanish manufacturing, whereas a standard model without endogenous intangible investment would miss more than half of the GDP fall. A policy of transfers conditional on firm age could speed up the recovery, as young firms tend to be more financially constrained, particularly regarding intangible investment. Conditioning transfers on firm size or subsidizing credit (as in current E.U. policy) appears to be less effective.