European Center for Advanced Research in Economics and Statistics

Dear all,

Please find attached the invitation to a joint Firm-level & Macroeconomics Seminar by Johannes Matt (LSE)

on

Firm Dynamics and Growth with Soft Budget Constraints 
(co-authored with Philippe Aghion, Antonin Bergeaud and Mathias Dewatripont)

Abstract

We develop a model of endogenous growth and firm dynamics with soft budget constraints, where firms differ in their innovation speed and slower firms need additional financing in order to eventually innovate. As creditors cannot anticipate refinancing needs in advance nor credibly commit to withholding future refinancing, a Soft Budget Constraint Syndrome emerges, causing excessive entry by slow firms and crowding out potentially more efficient innovators. The resulting trade-off between the positive effects of budget constraint softening on innovation by incumbents and slow-type entrants and its negative effects on entry by fast innovators, generates a hump-shaped relationship between refinancing costs and aggregate growth. Calibrating the model to French firm-level data, we show that the budget constraint softening associated with the decline in interest rates in the aftermath of the Global Financial Crisis accounts for 54% of the observed drop in the aggregate growth rates post-crisis. Although the softening in budget constraints has had a positive effect on incumbent innovation, this was more than offset by the resulting decrease in the entry rates of good firms (by 61% relative to the pre-crisis steady state).

The seminar will take place on Wednesday, May 28^th from 16:30 until 18:00 in the Theater Box of the National Bank of Belgium, entrance: bd. de Berlaimont 14, 1000 Brussels and will also be able to be followed via a Microsoft Teams meeting.

Please reply by email to nbbfirmanalysis.seminar@nbb.be if you wish to participate to this seminar or if you are interested by having a slot for a meeting in the afternoon with Prof. Matt, Bergeaud or Dewatripont.

Please let us know if you will be physically present or will be following online by Teams. After registration and if you have indicated that you want to join online you will receive a confirmation email with the link to the seminar.

In case you want to access the NBB Parking (rue Montagne aux Herbes potagères 41), please also provide us with your name and the license plate of your car.

Kind regards,

Gert Bijnens, Catherine Fuss and Raf Wouters