Research

100-word Abstract: I study firm-specific debt relief in a financial crisis through a DSGE model of heterogeneous firms and aggregate uncertainty, calibrated to U.S. data, including the unconditional size distribution, and age-size distribution of firms. A shock to the pledgeability of firms’ collateral exacerbates misallocation, causing a crisis. The government tries to optimize debt relief by choosing where to allocate funds. Policy targeting firms with the highest excess return to investment dampens the output trough by 47 percent. Further, if government can only see firm size or age they should target young, or medium size firms, not small firms. 

100-word Abstract: Since 1984, firm entry has declined faster than firm exit. There are potentially two competing effects on the severity of a recession: a missing generation effect, where fewer entrants decreases the mass of producers, and a selection effect, where entry costs raise the average entrant's productivity. I model two economies; one where the entry rate matches that of 1990, and another where entry costs rise to match the 2003 entry rate. Firms face adjustment, entry, and continuation costs, with idiosyncratic and aggregate risk. Results show the missing generation effect dominates and recessions are exacerbated with higher entry costs.