Fluctuations in Uncertainty, Efficient Borrowing Constraints and Firm Dynamics

Abstract

In main essay of my dissertation I quantify the importance of microeconomic uncertainty shocks for the firm dynamics over the business cycle in economy with frictional financial markets. To begin, I document novel facts on asymmetric, cyclical behavior across age and size groups of firms in the US. Then I lay down a theory in which differences between firms originate from the presence of asymmetric information in the financial market and long-term efficient contracts with financial intermediaries. Fluctuations in microeconomic uncertainty drive movements of the endogenous borrowing constraint affecting real allocations and imply asymmetric response of firms to the shocks.