The recession of 2007-2009 has been characterized by: (1) a large drop in employment concentrated in small firms, (2) an unprecedented decline in the number of firms, and (3) a slow recovery. This paper develops a heterogeneous firm model with labor adjustment cost, endogenous firm entry, and financial constraints that generates these key facts. The model predicts that a large financial shock results in a long-lasting recession due to limited firm entry. Using confidential firm-level employment data from the Bureau of Labor Statistics, I find support for the model mechanism. In the period of 2007-2009, small and young firms in sectors with high external finance dependence exhibited lower employment growth than those in low external finance dependent sectors. The e↵ect of external finance dependence on employment growth in small and young firms is primarily driven by firm entry and exit.

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We use extreme value theory (EVT) to develop insights about price theory. Our analysis reveals “detail-independent ” equilibrium properties that characterize a large family of models. We derive a formula relating equilibrium prices to the level of competition. When the number of firms is large, markups are proportional to 1 � ¡ � � 0 £ � −1 (1 − 1��) ¤ ¢, where � is the random utility noise distribution and � is the number of firms. This implies prices are pinned down by the tail properties of the noise distribution and that prices are independent of many other institutional details. The elasticity of the markup with respect to the number of firms is shown to be the EVT tail exponent of the distribution for preference shocks and in most leading cases is relatively insensitive to the number of firms. For example, for the Gaussian case asymptotic markups are proportional to 1 � √ ln �, implying a zero asymptotic elasticity of the markup with respect to the number of firms. Thus competition only exerts weak pressure on prices. We also study applications of the model, including endogenizing the level of noise.

Job polarization refers to the shrinking share of employment in middle-skill, routine oc-cupations experienced recently, over the last 30 years. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions, despite recoveries in aggregate output. We show how these two phenomena are related. First, essentially all employment loss in routine occupations occurs in economic downturns. Second, jobless recoveries in the aggregate can be accounted for by jobless recoveries in the routine occupations that are disappearing.

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The overall impact on the euro area economy of the financial crisis that started in 2007 was considerable, however with different effects across the various different countries and financial intermediaries. This article analyses the way in which the financial fragility of financial intermediaries and borrowers has affected the monetary policy transmission mechanism in the euro area, in particular through the credit channel. The study suggests that the effect of the bank lending channel has been partly mitigated by the non-standard policy measures that the ECB implemented until the end of 2011. At the same time, credit frictions for borrowers, especially from small banks, continued to prevail, particularly in distressed countries.

We show how extreme value theory (EVT) can be a useful tool in basic price theory. We derive a widely-applicable formula relating equilibrium prices to the level of competition in a variety of models. When the number of firms is large, markups are proportional to 1 / ( nF ′ [ F −1 (1 − 1/n)]) , where F is the random utility noise distribution, and n is the number of firms. This implies that the crucial element for predictions about prices is the noise distribution, in a manner that is independent of the many other details. The elasticity of the markup with respect to the number of firms is shown to be the EVT tail exponent of the distribution for preference shocks and in many cases is quite insensitive to the number of firms. For example, for the Gaussian case, asymptotic markups are proportional to 1 / √ ln n, implying a zero asymptotic elasticity of the markup with respect to the number of firms. Thus competition only exerts weak pressure on prices. Besides this basic price-theoretic issue, we consider applications to behavioral economics (as competition does not correct the price effects of the noise perceived by consumers, and increases the “noise ” supplied by firms) and macroeconomics (where we obtain endogenous markups).

JEL No. F31,F32,F34,F41 Using a sample of 110 developed and developing countries for the period 1990-2004 we analyze the empirical characteristics of systemic sudden stops (3S) in capital flows--understood as large and largely unexpected capital account contractions that occur in periods of systemic turmoil-- and the relevance of balance sheet effects in the likelihood of their materialization. We conjecture that large real exchange rate (RER) fluctuations come hand in hand with 3S. A small supply of tradable goods relative to their domestic absorption-- a proxy for potential changes in the real exchange rate-- and large foreign-exchange denominated debts towards the domestic banking system, denoted Domestic Liability Dollarization, DLD, are claimed to be key determinants of the probability of 3S, conforming a balance-sheet effect that impacts on the probability of 3S in non-linear fashion. Regarding financial integration, the larger is the latter, the larger is likely to be the probability of Sudden Stop; however, beyond a critical point

institutions. Thanks are also due to Autor, David Dorn, and Melanie Wasserman for sharing their occupationalclassification codes. Any remaining errors are our responsibility. The views expressed in this paperare not necessarily those of the Federal Reserve Bank of Boston, the Federal Reserve System, or theNational Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.