NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation

Mark Gertler, R. Glenn Hubbard, Anil Kashyap

NBER Working Paper No. 3495
Issued in October 1990
NBER Program(s):   EFG   ME

We present a simple framework that incorporates a role for "interest rate spreads" in models of investment fluctuations. Formally, we develop a simple model of investment and financial contracting under asymmetric information that can he used to generate an Euler equation describing firms' intertemporal decisions about investment. The Euler equation is than estimated using data on U.S. producers' durable equipment investment. We find that during certain periods -- owing to agency-cost problems -- the basic Euler equation is violated, and shifts in interest rate differentials help predict investment. Thus, the empirical results lend support to models emphasizing how: (i) movements in agency costs of external finance can amplify investment fluctuation, and (ii) changes in the interest rate spread may signal movements in these agency costs.

download in pdf format
   (539 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3495

Published:

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us