Financing Costs and Development

Tiago Cavalcanti, Joseph Kaboski, Bruno Martins and Cezar Santos

No 15930, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Most aggregate theories of financial frictions model credit available at a cost of financing equal to the savings rate but rationed. However, using a comprehensive loan-level credit registry, we document both high levels and high dispersion in default-adjusted credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which spreads arise from intermediation costs and market power. Calibrating to the Brazilian data, we show that, for equivalent levels of external financing, spreads have profound impacts on aggregate development, indeed more so than credit rationing does, and spreads yield firm dynamics that are consistent with observed patterns.

Keywords: Financial frictions; Credit spreads; Aggregate misallocation (search for similar items in EconPapers)
JEL-codes: O11 O16 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (9)

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Working Paper: Financing Costs and Development (2023)
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