SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis Staff Working Paper 2023-32 Pierre-Olivier Gourinchas, Şebnem Kalemli-Özcan, Veronika Penciakova, Nicholas Sander We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity. Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Firm dynamics, International topics JEL Code(s): D, D2, D21, D22, E, E6, E65, H, H8, H81