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Financing constraints, firm level adjustment of capital and aggregate implications

Listed author(s):
  • von Kalckreuth, Ulf

Following a positive shock, financing constraints will prolong or impede economic expansion that would have been optimal in an unconstrained environment. The study of dynamic adjustment therefore offers a direct way of verifying the presence of financing constraints and assessing their consequences for economic allocation. This paper compares the speed of adjustment of constrained and unconstrained firms using categorical information from survey data on the restrictions under which adjustment takes place. A set of moment conditions for the use in GMM estimation is developed, to cope with the problem of time varying speed of adjustment when the target level is partially unobserved. After estimating the micro-dynamics of capital demand, I show that the changing composition of the population makes for a time-varying sensitivity of the aggregate with respect to macroeconomic shocks.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,11.

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Date of creation: 2008
Handle: RePEc:zbw:bubdp1:7338
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  6. Bayer, Christian, 2006. "Investment dynamics with fixed capital adjustment cost and capital market imperfections," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1909-1947, November.
  7. Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 581-593.
  8. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  9. Russell W. Cooper & Jonathan L. Willis, 2001. "The economics of labor adjustment : mind the gap," Research Working Paper RWP 01-06, Federal Reserve Bank of Kansas City.
  10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  11. Ulf Von Kalckreuth, 2006. "Financial Constraints and Capacity Adjustment: Evidence from a Large Panel of Survey Data," Economica, London School of Economics and Political Science, vol. 73(292), pages 691-724, November.
  12. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
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  14. von Kalckreuth, Ulf, 2004. "Financial constraints for investors and the speed of adaptation: Are innovators special?," Discussion Paper Series 1: Economic Studies 2004,20, Deutsche Bundesbank, Research Centre.
  15. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 695-705.
  16. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-121, March.
  17. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 707-712.
  18. Ricardo J. Caballero & Eduardo M.R.A. Engel, 2004. "Three Strikes and You're Out: Reply to Cooper and Willis," NBER Working Papers 10368, National Bureau of Economic Research, Inc.
  19. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-137, March.
  20. Janice C. Eberly & Andrew B. Abel, 2004. "Q Theory Without Adjustment Costs & Cash Flow Effects Without Financing Constraints," 2004 Meeting Papers 205, Society for Economic Dynamics.
  21. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  22. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  23. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
  24. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
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