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The Financing of Ideas and the Great Deviation.

Author: Daniel Garcia-Macia
Publisher: Washington, D.C. : International Monetary Fund, 2017.
Series: IMF Working Papers.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Summary:
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  Read more...
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Genre/Form: Electronic books
Additional Physical Format: Print version:
Garcia-Macia, Daniel.
Financing of Ideas and the Great Deviation.
Washington, D.C. : International Monetary Fund, ©2017
Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Daniel Garcia-Macia
ISBN: 9781484314562 1484314565 1484311132 9781484311134
OCLC Number: 1001372348
Description: 1 online resource (53 pages).
Contents: Cover; The Financing of Ideas and the Great Deviation; 1 Introduction; 2 Related Literature; 3 Model; 4 Data; 5 Estimation; 6 Macroeconomic Analysis; 7 Conclusions; References.
Series Title: IMF Working Papers.

Abstract:

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.

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