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http://ssrn.com/abstract=255329
 
 

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Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation


Mark Gertler


New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

R. Glenn Hubbard


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Anil K. Kashyap


University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

November 1990

NBER Working Paper No. w3495

Abstract:     
We present a simple framework that incorporates a role for "interest rate spreads" in models of investment fluctuations. Formally, we develop a simple model of investment and financial contracting under asymmetric information that can he used to generate an Euler equation describing firms' intertemporal decisions about investment. The Euler equation is than estimated using data on U.S. producers' durable equipment investment. We find that during certain periods -- owing to agency-cost problems -- the basic Euler equation is violated, and shifts in interest rate differentials help predict investment. Thus, the empirical results lend support to models emphasizing how: (i) movements in agency costs of external finance can amplify investment fluctuation, and (ii) changes in the interest rate spread may signal movements in these agency costs.

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Date posted: January 14, 2001  

Suggested Citation

Gertler, Mark and Hubbard, R. Glenn and Kashyap, Anil K., Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation (November 1990). NBER Working Paper No. w3495. Available at SSRN: http://ssrn.com/abstract=255329

Contact Information

Mark Gertler (Contact Author)
New York University - Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
7th Floor
New York, NY 10003
United States
212-998-8931 (Phone)
212-995-4186 (Fax)
National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
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Robert Glenn Hubbard
Columbia Business School - Finance and Economics ( email )
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New York, NY 10027
United States
HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Anil K. Kashyap
University of Chicago, Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7260 (Phone)
773 702-0458 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-7260 (Phone)
773-702-0458 (Fax)
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604
United States
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