TY  - JOUR
AU  - Haan,Wouter den
AU  - Ramey,Garey
AU  - Watson,Joel
TI  - Liquidity Flows and Fragility of Business Enterprises
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7057
PY  - 1999
Y2  - March 1999
UR  - http://www.nber.org/papers/w7057
L1  - http://www.nber.org/papers/w7057.pdf
N1  - Author contact info:
Wouter J. den Haan
Department of Economics
University of Amsterdam
Roetersstraat
1017 RS  Amsterdam
Netherlands
Tel: +31(0)205255237
E-Mail: wjdenhaan@gmail.com

Garey Ramey
Department of Economics, 0508
University of California, San Diego
La Jolla, CA   92093-0508
Tel: 619/534-5721;  gramey@weber.ucsd.edu
E-Mail: gramey@ucsd.edu

Joel Watson
UC, San Diego
Department of Economics, 0508
9500 Gillman Drive
La Jolla, CA 92093-0508
E-Mail: jwatson@ucsd.edu
AB  - This paper considers the efficiency of financial intermediation and the propagation of business cycle shocks in a model of long-term relationships between entrepreneurs and lenders lenders may be constrained in their short-run access to liquidity. When liquidity is low, relationships are subject to breakups that lead to loss of joint surplus. Liquidity outflows cause damage to financial structure by breaking up relationships, and damage persists due to frictions in the formation of new relationships. Feedbacks between aggregate investment and the structure of intermediation greatly magnify the effects of shocks. For large shocks, financial collapse may become inescapable in the absence of external intervention.
ER  -