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Credit Crunches, Asset Prices and Technological Change"

Author

Listed:
  • Luis Araujo

    (Michigan State University)

  • Qingqing Cao

    (Michigan State University)

  • Raoul Minetti

    (Michigan State University)

  • Pierluigi Murro

    (LUISS University)

Abstract

We investigate the effects of a credit crunch in an economy where firms can retain a mature technology or adopt a new technology. We show that firms' collateral eases firms' access to credit and investment but can also inhibit firms' innovation. When this occurs, a contraction in the price of collateral assets squeezes collateral-poor firms out of the credit market but fosters the innovation of collateral-rich firms. The analysis reveals that the credit and asset market policies adopted during recent credit market crises can boost investment but slow down innovation. We find that the predictions of the model are consistent with the innovation patterns of a large sample of European firms during the 2008-2010 credit crisis. (Copyright: Elsevier)

Suggested Citation

  • Luis Araujo & Qingqing Cao & Raoul Minetti & Pierluigi Murro, 2019. "Credit Crunches, Asset Prices and Technological Change"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 153-179, April.
  • Handle: RePEc:red:issued:18-267
    DOI: 10.1016/j.red.2019.02.001
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    References listed on IDEAS

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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.

    More about this item

    Keywords

    Credit crunch; Technological change; Collateral;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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