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Quantifying Reduced-Form Evidence on Collateral Constraints

Author

Listed:
  • Sylvain Catherine
  • Thomas Chaney

    (Département d'économie)

  • Zongbo Huang

    (Chinese University of Hong Kong (CUHK))

  • David Sraer

    (Princeton University)

  • David Thesmar

    (Faculté des Hautes Etudes Commerciales (HEC Lausanne))

Abstract

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.

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  • Sylvain Catherine & Thomas Chaney & Zongbo Huang & David Sraer & David Thesmar, 2018. "Quantifying Reduced-Form Evidence on Collateral Constraints," Sciences Po publications info:hdl:2441/5e3g19l1fn9, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/5e3g19l1fn9thpq7ldd8kqr3vu
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