Structural Modelling of Financial Constraints on Investment: Where Do We Stand?

This paper surveys issues with respect to the structural modelling of econometric tests of investment facing financial constraints, to their link with firms data and asset prices, and to their consequences for macroeconomic modelling. The key issue is to provide conditions which support the interpretation of the sensitivity of investment to liquidity variables such as cash flow as a measure of financial constraints. The structural modelling of investment facing financial constraints is also limited by the structural modelling of the forces driving investment dynamics such as adjustment costs, which has not been so successful empirically.