Quantifying Reduced-Form Evidence on Collateral Constraints
57 Pages Posted: 5 Jun 2016 Last revised: 1 Feb 2018
Date Written: January 31, 2018
While a mature literature shows that credit constraints causally affect firm-level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.
Keywords: Structural model, Financing Constraint, Aggregate Implications
JEL Classification: G32, D92, E10
Suggested Citation: Suggested Citation