Structure and macroeconomic performance: Heterogeneous firms and financial fragility

Abstract

In this paper we adopt a new macrodynamic tool, i.e. a system of non-linear difference equations describing the evolution over time of the first and second moments of the distribution of firms' degrees of financial robustness captured by the ratio of the equity base to the capital stock - the equity ratio for short - which affects supply and capital accumulation decisions. For particular configurations of parameters the dynamic patterns of the average equity ratio and the variance generate irregular and asymmetric time series in which growth and fluctuations are jointly determined (fluctuating growth). © 2005 Springer-Verlag Berlin Heidelberg.