Credit Crunches, Asset Prices and Technological Change

Luis Araujo () and Raoul Minetti

No 1204, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: We investigate the effects of a credit crunch in an economy where firms can operate a mature technology or restructure their activity and adopt a new technology. We show that firms’ collateral and credit relationships ease firms’ access to credit and investment but can also inhibit firms’ restructuring. When this occurs, negative collateral or productivity shocks and the resulting drop in the price of collateral assets squeeze collateral-poor firms out of the credit market but foster the restructuring of collateral-rich firms. We characterize conditions under which such an increase in firms’ restructuring occurs within existing credit relationships or through their breakdown. The analysis reveals that the credit and asset market policies adopted during the recent credit crunch can promote investment but might also slow down a process of Shumpeterian restructuring in the credit market.

Keywords: Aggregate restructuring; Collateral; Credit relationships; Credit crunch. (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Credit Crunches, Asset Prices and Technological Change (2019)
Working Paper: Credit crunches, asset prices, and technological change (2018)
Working Paper: Credit Crunches, Asset Prices and Technological Change (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:lui:casmef:1204

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