Federal Reserve Bank of Richmond
Misallocation and Credit Market Constraints: the Role of Long-Term Financing
We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model using firm-level data on credit spreads from Thomson Reuters Bond Security Data and balance sheet data from Compustat. Credit market constraints increase aggregate productivity by 0.4% through their effect on the credit spread distribution. However, credit market constraints also interact with costly equity payouts, resulting in an overall productivity loss equal to 1.6%.
Cite this item
Marios Karabarbounis & Patrick Macnamara, Misallocation and Credit Market Constraints: the Role of Long-Term Financing, Federal Reserve Bank of Richmond, Working Paper 19-1, 16 Jan 2019.
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Keywords: misallocation; endogenous borrowing constraints; long-duration bonds
This item with handle RePEc:fip:fedrwp:19-01
is also listed on EconPapers
For corrections, contact Christian Pascasio ()