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Credit Crunches, Asset Prices and Technological Change

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Author Info

  • Luis Araujo

    (Michigan State University and Sao Paulo School of Economics - FGV)

  • Raoul Minetti

    ()
    (Michigan State University)

Abstract

We investigate the effects of a credit crunch in an economy where firms can operate a mature technology or restructure their activity and adopt a new technology. We show that firms’ collateral and credit relationships ease firms’ access to credit and investment but can also inhibit firms’ restructuring. When this occurs, negative collateral or productivity shocks and the resulting drop in the price of collateral assets squeeze collateral-poor firms out of the credit market but foster the restructuring of collateral-rich firms. We characterize conditions under which such an increase in firms’ restructuring occurs within existing credit relationships or through their breakdown. The analysis reveals that the credit and asset market policies adopted during the recent credit crunch can promote investment but might also slow down a process of Shumpeterian restructuring in the credit market.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CASMEF with number 1204.

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Date of creation: 2012
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Handle: RePEc:lui:casmef:1204

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Keywords: Aggregate restructuring; Collateral; Credit relationships; Credit crunch.;

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  1. Luigi Guiso & Raoul Minetti, 2010. "The Structure of Multiple Credit Relationships: Evidence from U.S. Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1037-1071, 09.
  2. Giovanni Dell'Ariccia & Pietro Garibaldi, 2005. "Gross Credit Flows," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 665-685.
  3. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 467-482.
  4. Manove, M. & Padilla, A.J., 1997. "Banking (Conservatively) with Optimists," Papers 9718, Centro de Estudios Monetarios Y Financieros-.
  5. Giovanni Dell'Ariccia & Pietro Garibaldi, 1998. "Bank Lending and Interest Rate Changes in a Dynamic Matching Model," IMF Working Papers 98/93, International Monetary Fund.
  6. Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-44, Winter.
  8. Mitchell Berlin & Alexander Butler, 2002. "Collateral and competition," Working Papers 02-22, Federal Reserve Bank of Philadelphia.
  9. Bhattacharya Sudipto & Chiesa Gabriella, 1995. "Proprietary Information, Financial Intermediation, and Research Incentives," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 328-357, October.
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Cited by:
  1. Caterina Mendicino, 2012. "Collateral Requirements: Macroeconomic Fluctuations and Macro-Prudential Policy," Working Papers w201211, Banco de Portugal, Economics and Research Department.

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