We consider business cycles driven by exogenous changes in total factor productivity and by credit shocks. The latter are financial shocks that worsen borrowers cash on hand and reduce the fraction of collateral lenders can seize in the event of default. Our nonlinear loan rate schedules drive...

We study the cyclical implications of endogenous firm-level entry and exit decisions in a dynamic, stochastic general equilibrium model wherein firms face persistent shocks to both aggregate and individual productivity. The model we explore is in the spirit of Hopenhayn (1992). Firms' decisions...