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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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Credit Allocation under Economic Stimulus: Evidence from China
TL;DR: In this paper, the authors study credit allocation across firms in developing economies with severe financial frictions and find that credit expansions during recessions can slow down or even reverse the gradual reallocation of resources from low to high productivity firms.
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Monetary Policy, the Financial Cycle and Ultralow Interest Rates
Mikael Juselius,Mikael Juselius,Mikael Juselius,Claudio Borio,Piti Disyatat,Mathias Drehmann +5 more
TL;DR: In this article, the authors argue that the prevailing unusually and persistently low real interest rates reflect a decline in the natural rate of interest as commonly thought, and that the critical role of financial factors in influencing medium-term economic fluctuations must also be taken into account.
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Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity
TL;DR: In this paper, the menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment), and generalized difference-in-differences tests show that firms operating more movable asset borrowed more as a result.
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Supply Constraints Are Not Valid Instrumental Variables for Home Prices Because They Are Correlated with Many Demand Factors
TL;DR: This paper showed that supply constraints are highly correlated with productivity proxies such as historical education levels, immigration, and national employment growth in locally prevalent industries, which invalidates common uses of constraints as part of instrumental variables for home prices.
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Financial Constraints and Moral Hazard: The Case of Franchising
TL;DR: In this paper, the authors study theoretically and empirically how the financial constraints of agents affect their decisions to exert effort, and hence the organizational decisions and growth of principals, in the context of franchising.
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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.