A macroeconomic model of bankruptcy

Tamborini, Roberto (1997) A macroeconomic model of bankruptcy. Technical Report 2, CEEL (Computable and Experimental Economics Laboratory).

Abstract

This paper relates to the macroeconomics of imperfect capital markets. In this framework, the heterogeneity of agents, notably of borrowing firms, is a key element in the explanation of interactions between financial intermediaries and borrowers facing a bankruptcy probability.
This probability is usually introduced through exogenous stochastic factors in firms' revenue. In this paper I pursue a more inherently informational approach which, even though all market processes are deterministic, partly "endogenizes" the default probability as a consequence of heterogeneous, privately-held price expectations across firms. Then I examine in detail the
credit transmission mechanism and its impact on the macroeconomic variables in an economy with characteristics such as those in 1) to 5).