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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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Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral
TL;DR: The authors found that a decline in bank equity or liquidity reduces liquidation values of bank-owned real estate and accelerates the pace of asset sales, suggesting that balance sheet adjustments at financial institutions can explain real asset price dynamics.
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Climate Change and Corporate Cash Holdings: Global Evidence
TL;DR: This paper found that firms increase their cash holdings as a response to climate risk, driven by financially constrained firms and becomes significantly stronger after the release of the Stern======Review that improved awareness about climate risk.
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Land Price Dynamics and Macroeconomic Fluctuations with Imperfect Substitution in Real Estate Markets
TL;DR: In this article, Liu et al. enrich the DSGE model of the collateral channel by adding a land development sector to allow residential and commercial land to be imperfect substitutes, and they show that the strength of the relationship between residential house prices and firm investment is weaker when the two types of land are imperfect substitutes.
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The Macroeconomic Implications of Limited Arbitrage
Ally Quan Zhang,Ally Quan Zhang +1 more
TL;DR: In this article, the authors developed a simple general equilibrium model to study the interactions between financial arbitrage and the real economy under collateral constraints and found that arbitrage activities help boost the production sectors by providing external funds to capital investment.
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Local economic benefits increase positivity toward foreigners.
TL;DR: It is found that exposure to the economic benefits associated with the presence of higher socioeconomic status immigrants, such as the receipt of large inflows of foreign capital, can reduce xenophobic and antiforeigner sentiment.
References
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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.