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|a Aghion, Philippe
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|a Massachusetts Institute of Technology. Department of Economics
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|a Angeletos, George-Marios
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|a Angeletos, George-Marios
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|a Banerjee, Abhijit
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|a Angeletos, George-Marios
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|a Angeletos, George-Marios
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|a Banerjee, Abhijit
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|a Manova, Kalina
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|a Volatility and Growth: Credit Constraints and the Composition of Investment
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|b Elsevier,
|c 2010-03-05T18:53:28Z.
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|z Get fulltext
|u http://hdl.handle.net/1721.1/52352
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|a How does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth? This paper addresses this question within a model where firms engage in two types of investment: a short-term one; and a long-term one, which contributes more to productivity growth. Because it takes longer to complete, long-term investment has a relatively less cyclical return; but it also has a higher liquidity risk. The first effect ensures that the share of long-term investment to total investment is countercyclical when financial markets are perfect; the second implies that this share may turn procyclical when firms face tight credit constraints. A novel propagation mechanism thus emerges: through its effect on the cyclical composition of investment, tighter credit can lead to both higher volatility and lower mean growth. Evidence from a panel of countries provides support for the model's key predictions.
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|a en_US
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|a Article
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|t Journal of Monetary Economics
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