Misallocation and Credit Market Constraints: the Role of Long-Term Financing

Marios Karabarbounis and Patrick Macnamara

No 19-1, Working Paper from Federal Reserve Bank of Richmond

Abstract: 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%.

Keywords: misallocation; endogenous borrowing constraints; long-duration bonds (search for similar items in EconPapers)
JEL-codes: E23 E44 G32 O47 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2019-01-16
New Economics Papers: this item is included in nep-fdg and nep-mac
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Citations: View citations in EconPapers (2)

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