Utjecaj financijskog trenja na razvoj i opstanak srednjih poduzeća u Republici Hrvatskoj

Financial friction as a link between the return on financial capital, i.e. return on capital and assets, the cost of capital paid by companies, and the amount that investors earn from financial requirements, is rarely used in economic theory and introduced into financial analysis policy, mainly by monetary authorities. Previous research on this topic has indicated the need to introduce such models in financial analysis, mainly for the purpose of examining the need to increase available capital inflows at acceptable rates. This paper proposes a different approach to this problem, i.e. on the sample of financial data for 5 business years of 50 medium-sized Croatian companies, using models based on ANFIS, the impact of financial friction on the development potential of companies has been analysed. In the definition of the model, the variables such as return on assets (ROA), return on equity (ROE), equity ratio, indebtedness ratio and EBITDA margin were used. The conducted analysis can serve entrepreneurs in finding the optimal ratio of financial leverage for sustainable business focused on development strategies, but also policy makers in defining the need to subsidize interest rates on business loans.

Bubbly Recessions

We develop a tractable bubbles model with financial friction and downward wage rigidity. Competitive speculation in risky bubbles can result in excessive investment booms that precede inefficient busts, where post-bubble aggregate economic activities collapse below the pre-bubble trend. Risky bubbles can reduce ex ante social welfare, and leaning-against-the-bubble policies that balance the boom-bust trade-off can be warranted. We further show that the collapse of a bubble can push the economy into a “secular stagnation” equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent recession, such as the Japanese “lost decades.” (JEL E22, E24, E32, E44, L26)

REGRESSIVE WELFARE EFFECTS OF HOUSING BUBBLES

We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers’ demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility purposes. The model also implies a feedback loop: high-income inequality depresses the interest rates, facilitating the existence of housing bubbles, which in turn has regressive welfare effects.