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Credit constraints, capital portfolios, and measured productivity

Author

Listed:
  • Alfred Duncan
  • Anup Mulay

    (Bank of Lithuania)

Abstract

We develop a model connecting financial shocks, capital investment decisions by firms, and change in measured aggregate productivity using a dynamic general equilibrium model. Data shows that post the 2008 crisis, firms changed their allocation between assets of varying depreciation rates as credit conditions tightened, which is connected to changes in measured TFP. We propose a model that shows the mechanism of an adverse shock to credit access causing firms to change the balance sheet portfolio composition of productive assets. This reallocation of assets leads to an increase in measured productivity.

Suggested Citation

  • Alfred Duncan & Anup Mulay, 2022. "Credit constraints, capital portfolios, and measured productivity," Bank of Lithuania Working Paper Series 109, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:109
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    More about this item

    Keywords

    Financial crisis; measured productivity; collateral; capital assets; credit constraint.;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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