Agency Costs, Net Worth and Endogenous. Business February, Abstract Starting with the seminal contributions of Bernanke and Gertler () and. Ben S. Bernanke and Mark Gertler. Most economists would . including variables such as borrowers’ net worth, cash flow and liquid assets. The second linkage. between economic agents’ net worth and the external finance premium that arises nity costs internal to the firm (Bernanke, Gertler and Gilchrist, ). The between borrowers and lenders increases agency costs.5 What types of . ; Elekdag et al., ; Gertler et al., ; Christiansen and Dib, ; Portes.

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Business upturns improve net worth, lower agency costs, and increase investment, which amplifies the upturn; vice versa, for downturns.

Agency Costs, Net Worth, and Business Fluctuations

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Shocks that affect net worth as in a debt-deflation can initiate fluctuations. More about this item Statistics Access and download statistics. You can help correct errors and omissions. Copyright by American Economic Association. As the access to this document is restricted, you may want to search for a different version of it.

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The mechanism is that higher borrower net worth reduces the agency costs of financing real capital investments. More about this item Statistics Access and download statistics Corrections All material on this site has been provided by the respective publishers and authors.

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Agency Costs, Net Worth, and Business Fluctuations

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Corrections All material on this site has been provided by the respective publishers and authors. When requesting a correction, please mention this item’s handle: Please note that corrections may take a couple of weeks to filter through the various RePEc services. This paper develops a simple neoclassical model of the business cycle in which the condition of borrowers’ balance sheets is a source of output dynamics.