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Financing constraints, firm level adjustment of capital and aggregate implications

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  • von Kalckreuth, Ulf

Abstract

Following a positive shock, financing constraints will prolong or impede economic expansion that would have been optimal in an unconstrained environment. The study of dynamic adjustment therefore offers a direct way of verifying the presence of financing constraints and assessing their consequences for economic allocation. This paper compares the speed of adjustment of constrained and unconstrained firms using categorical information from survey data on the restrictions under which adjustment takes place. A set of moment conditions for the use in GMM estimation is developed, to cope with the problem of time varying speed of adjustment when the target level is partially unobserved. After estimating the micro-dynamics of capital demand, I show that the changing composition of the population makes for a time-varying sensitivity of the aggregate with respect to macroeconomic shocks.

Suggested Citation

  • von Kalckreuth, Ulf, 2008. "Financing constraints, firm level adjustment of capital and aggregate implications," Discussion Paper Series 1: Economic Studies 2008,11, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:7338
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    References listed on IDEAS

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    Cited by:

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    2. Olga Bohachova & Bernhard Boockmann & Claudia M. Buch, 2011. "Labor Demand During the Crisis: What Happened in Germany?," CESifo Working Paper Series 3625, CESifo.
    3. Fidrmuc, Jarko & Hainz, Christa, 2013. "The effect of banking regulation on cross-border lending," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1310-1322.
    4. Ulf Kalckreuth, 2011. "Panel estimation of state-dependent adjustment when the target is unobserved," Empirical Economics, Springer, vol. 40(1), pages 205-235, February.

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    More about this item

    Keywords

    Financing constraints; adjustment; dynamic panel data models;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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