Credit Constraints, Firms' Precautionary Investment, and the Business Cycle
This paper studies the macroeconomic implications of firms' precautionary real investment behavior in response to the anticipation of future financing constraints. Firms increase their demand for liquid and safe but low-return investments in anticipation of future borrowing constraints in order to decrease the probability of having to forego future profitable investment opportunities. I show in a calibrated model that this behavior is at the source of a novel and powerful amplification channel of macroeconomic shocks. Furthermore, it can account for the observed business cycle patterns of the aggregate and firm-level composition of real investment, a set of observations which is at odds with the existing models studying the macroeconomic implications of financial frictions, in which the expectation of future credit constraints does not directly affect firms' current actions.
Year of publication: |
2010
|
---|---|
Authors: | Perez, Ander |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Aggregate implications of financial and labour market frictions
Perez, Ander, (2014)
-
Credit Lines as Monitored Liquidity Insurance: Theory and Evidence
Almeida, Heitor, (2012)
-
Is Bank Debt Special for the Transmission of Monetary Policy? Evidence from the Stock Market
Perez, Ander, (2013)
- More ...