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Macro midterm spring

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They use a set of real and financial variables for the manufacturing sector to analyse the response of small and large firms to monetary policy. They find that small firms contracts substantially relative to large firms after tightening money and they account for a significantly disproportionate share of the manufacturing decline. These results support the importance of imperfect financial markets as large firm's borrowing increases after monetary tightening, where the small firm's borrowing declines sharply. Due to the fact small firms are likely to face larger barriers to outside finance than larger firms do.

Author: Daniel Ortega


Financial Imperfection - Gentler & Gilchrist

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