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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment
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In this article, the impact of real estate prices on corporate investment was studied and the sensitivity of investment to real estate values was found to be a function of local variations in real estate price as shocks to the collateral value of firms that own real estate.Abstract:
What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.read more
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Hazardous lending: The impact of natural disasters on bank asset portfolio
TL;DR: In this paper , the authors examine how banks adjust their asset structure in response to changes in loan demand following natural disasters and demonstrate how banks’ asset diversification strategy helps clients smooth consumption and supports local recovery.
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Sectoral Bubbles and Endogenous Growth
Jianjun Miao,Pengfei Wang +1 more
TL;DR: In this paper, a two-sector endogenous growth model with credit-driven stock price bubbles is presented, and the authors consider the interplay between credit easing and capital reallocation effects.
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The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis
TL;DR: This article analyzed the effect of local cash flow shocks on the real and financial sector during the 1980s Farm Debt crisis and showed that such shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages.
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Foreign currency borrowing, balance sheet shocks and real outcomes
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Employment Effects of Alleviating Financing Frictions: Worker-level Evidence from a Loan Guarantee Program
TL;DR: This article investigated the labor market effects of a loan guarantee program targeting French SMEs in the midst of the financial crisis and found that the program has a significant and persistent positive impact on workers' employment and earnings trajectories, in particular for those initially employed in high-unemployment areas.
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Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
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How Much Should We Trust Differences-In-Differences Estimates?
TL;DR: In this article, the authors randomly generate placebo laws in state-level data on female wages from the Current Population Survey and use OLS to compute the DD estimate of its "effect" as well as the standard error of this estimate.
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Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?
Steven N. Kaplan,Luigi Zingales +1 more
TL;DR: In this article, the authors investigated the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment cash flow sensitivity.
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Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
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Tobin's Marginal q and Average q : A Neoclassical Interpretation
TL;DR: In this paper, the optimal rate of investment as a function of marginal q adjusted for tax parameters is derived from data on average q assuming the actual U.S. tax system concerning corporate tax rate and depreciation allowances.