TY - JOUR AU - Gertler, Mark AU - Hubbard, R. Glenn AU - Kashyap, Anil TI - Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation JF - National Bureau of Economic Research Working Paper Series VL - No. 3495 PY - 1990 Y2 - October 1990 DO - 10.3386/w3495 UR - http://www.nber.org/papers/w3495 L1 - http://www.nber.org/papers/w3495.pdf N1 - Author contact info: Mark Gertler Department of Economics New York University 269 Mercer Street, 7th Floor New York, NY 10003 Tel: 212/998-8931 Fax: 212/995-4186 E-Mail: mark.gertler@nyu.edu R. Glenn Hubbard Graduate School of Business Columbia University, 101 Uris Hall 3022 Broadway New York, NY 10027 Tel: 212/854-3493 Fax: 212/864-6184 E-Mail: rgh1@columbia.edu Anil K. Kashyap Booth School of Business University of Chicago 5807 S. Woodlawn Avenue Chicago, IL 60637 Tel: 773/702-7260 Fax: 773/702-0458 E-Mail: anil.kashyap@chicagobooth.edu M1 - published as Mark Gertler, R. Glenn Hubbard, Anil Kashyap. "Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation," in R. Glenn Hubbard, editor, "Financial Markets and Financial Crises" University of Chicago Press (1991) AB - 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. ER -