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Unpublished Paper
Credit Conditions, Dynamic Distortions, and Capital Accumulation in Mexican Manufacturing
  • Carlos Urrutia
  • Felipe Meza
  • Sangeeta Pratap, Hunter College
This paper documents a transmission channel from credit conditions to capital accumulation via investment wedges at a disaggregated level. We use a simple multi-industry model of production and investment to identify these wedges (i.e., deviations from the optimality condition based on a stochastic Euler equation) from a panel of observations at the 4-digit industry level from Mexican manufacturing. We measure the dynamic distortions in capital accumulation and show that their behavior is important in accounting for changes in the aggregate capital stock over time. We then analyze the sources of these distortions, working with one important candidate: bank credit. Using a simple model of investment with financial frictions, we show that greater availability and cheaper access to credit reduce capital distortions and find empirical support for this mechanism in the data.
Publication Date
March, 2018
Citation Information
Carlos Urrutia, Felipe Meza and Sangeeta Pratap. "Credit Conditions, Dynamic Distortions, and Capital Accumulation in Mexican Manufacturing" (2018)
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