Financial distress, bankruptcy law and the business cycle
This paper explores the business cycle implications of financial distress and bankruptcy law. We find that due to the presence of financial imperfections the effect of liquidations on the price of capital goods can generate endogenous fluctuations. We show that a law reform that "softens"...
| Main Authors: | , |
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| Format: | Working paper |
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University of Oxford
2004
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| _version_ | 1797093754994163712 |
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| author | Sussman, O Suarez, J |
| author_facet | Sussman, O Suarez, J |
| author_sort | Sussman, O |
| collection | OXFORD |
| description | This paper explores the business cycle implications of financial distress and bankruptcy law. We find that due to the presence of financial imperfections the effect of liquidations on the price of capital goods can generate endogenous fluctuations. We show that a law reform that "softens" bankruptcy law may increase the amplitude of the cycle in the long run. In contrast, a policy of bailing out businesses during the bust, or actively managing the interest rate across the cycle, could stabilize the economy in the long run. A comprehensive welfare analysis of the policy is provided as well. |
| first_indexed | 2024-03-07T04:04:49Z |
| format | Working paper |
| id | oxford-uuid:c5c91318-3907-4e9b-ad82-47411b625a04 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T04:04:49Z |
| publishDate | 2004 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:c5c91318-3907-4e9b-ad82-47411b625a042022-03-27T06:33:30ZFinancial distress, bankruptcy law and the business cycleWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:c5c91318-3907-4e9b-ad82-47411b625a04Bulk import via SwordSymplectic ElementsUniversity of Oxford2004Sussman, OSuarez, JThis paper explores the business cycle implications of financial distress and bankruptcy law. We find that due to the presence of financial imperfections the effect of liquidations on the price of capital goods can generate endogenous fluctuations. We show that a law reform that "softens" bankruptcy law may increase the amplitude of the cycle in the long run. In contrast, a policy of bailing out businesses during the bust, or actively managing the interest rate across the cycle, could stabilize the economy in the long run. A comprehensive welfare analysis of the policy is provided as well. |
| spellingShingle | Sussman, O Suarez, J Financial distress, bankruptcy law and the business cycle |
| title | Financial distress, bankruptcy law and the business cycle |
| title_full | Financial distress, bankruptcy law and the business cycle |
| title_fullStr | Financial distress, bankruptcy law and the business cycle |
| title_full_unstemmed | Financial distress, bankruptcy law and the business cycle |
| title_short | Financial distress, bankruptcy law and the business cycle |
| title_sort | financial distress bankruptcy law and the business cycle |
| work_keys_str_mv | AT sussmano financialdistressbankruptcylawandthebusinesscycle AT suarezj financialdistressbankruptcylawandthebusinesscycle |