Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319947 
Year of Publication: 
2012
Series/Report no.: 
CASMEF Working Paper Series No. WP 2012/04
Publisher: 
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
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.
Subjects: 
Aggregate restructuring
Collateral
Credit relationships
Credit crunch
JEL: 
E44
Document Type: 
Working Paper

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