Paper #1622

Título:

Collateral booms and information depletion

Autores:

Vladimir Asriyan, Luc Laeven y Alberto Martin

Data:

Diciembre 2020

Resumen:

We develop a new theory of information production during credit booms. Entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralizationscreening mix depends on the value of aggregate collateral. High collateral values make it possible to reallocate resources towards productive projects, but they also crowd out screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g., real estate booms), economic activity expands but the economy's stock of information on existing projects gets depleted. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing projects, which takes time to rebuild. We provide empirical support for the mechanism using US firm-level data.

Palabras clave:

Credit booms, collateral, information production, crises, misallocation.

Códigos JEL:

E32, E44, G01, D80.

Área de investigación:

Macroeconomía y Economía Internacional

Publicado en:

Review of Economic Studies, 89 (2), 2022, 517–555.

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