Aggregate Restructuring and the Credit Market

21 Pages Posted: 18 Feb 2007

See all articles by Raoul Minetti

Raoul Minetti

Michigan State University - Department of Economics

Date Written: February 2007

Abstract

We investigate the role of the credit market in an economy where firms can implement 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, a negative collateral shock squeezes collateral-poor firms out of the credit market but fosters the restructuring of collateral-rich firms, possibly through the breakdown of their credit relationships. We characterize conditions under which, through their effect on the price of collateral assets, the credit rationing of collateral-poor firms and the restructuring of collateral-rich firms reinforce or conflict with each other.

Keywords: Aggregate Restructuring, Collateral, Credit Relationships

JEL Classification: E44

Suggested Citation

Minetti, Raoul, Aggregate Restructuring and the Credit Market (February 2007). Available at SSRN: https://ssrn.com/abstract=963608 or http://dx.doi.org/10.2139/ssrn.963608

Raoul Minetti (Contact Author)

Michigan State University - Department of Economics ( email )

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East Lansing, MI 48824
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