Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation
We study the impact that financial intermediation can have on productivity through the alleviation of credit constraints in occupation choice and/or an improved allocation of risk, using both static and dynamic structural models as well as reduced-form OLS and IV regressions. Our goal in this paper...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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Cambridge University Press
2010
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| Online Access: | http://hdl.handle.net/1721.1/51038 https://orcid.org/0000-0002-1528-8102 |
| _version_ | 1811081295861645312 |
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| author | Townsend, Robert Urzula, Sergio S. |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Townsend, Robert Urzula, Sergio S. |
| author_sort | Townsend, Robert |
| collection | MIT |
| description | We study the impact that financial intermediation can have on productivity through the alleviation of credit constraints in occupation choice and/or an improved allocation of risk, using both static and dynamic structural models as well as reduced-form OLS and IV regressions. Our goal in this paper is to bring these two strands of the literature together. Even though, under certain assumptions, IV regressions can accurately recover the true model-generated local average treatment effect, this is quantitatively different, in order of magnitude and even sign, from other policy impact parameters (e.g., ATE and TT). We also show that laying out clearly alternative models can guide the search for instruments. On the other hand, adding more margins of decision, that is, occupation choice and intermediation jointly, or adding more periods with promised utilities as key state variables, as in optimal multiperiod contracts, can cause the misinterpretation of IV as the causal effect of interest. |
| first_indexed | 2024-09-23T11:44:30Z |
| format | Article |
| id | mit-1721.1/51038 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T11:44:30Z |
| publishDate | 2010 |
| publisher | Cambridge University Press |
| record_format | dspace |
| spelling | mit-1721.1/510382022-09-27T21:34:47Z Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation Townsend, Robert Urzula, Sergio S. Massachusetts Institute of Technology. Department of Economics Townsend, Robert Townsend, Robert We study the impact that financial intermediation can have on productivity through the alleviation of credit constraints in occupation choice and/or an improved allocation of risk, using both static and dynamic structural models as well as reduced-form OLS and IV regressions. Our goal in this paper is to bring these two strands of the literature together. Even though, under certain assumptions, IV regressions can accurately recover the true model-generated local average treatment effect, this is quantitatively different, in order of magnitude and even sign, from other policy impact parameters (e.g., ATE and TT). We also show that laying out clearly alternative models can guide the search for instruments. On the other hand, adding more margins of decision, that is, occupation choice and intermediation jointly, or adding more periods with promised utilities as key state variables, as in optimal multiperiod contracts, can cause the misinterpretation of IV as the causal effect of interest. Bill and Melinda Gates Foundation Templeton Foundation National Science Foundation NICHD 2010-01-29T18:45:30Z 2010-01-29T18:45:30Z 2009-09 2009-06 Article http://purl.org/eprint/type/SubmittedJournalArticle 1365-1005 http://hdl.handle.net/1721.1/51038 Robert M. Townsend and Sergio S. Urzua (2009). MEASURING THE IMPACT OF FINANCIAL INTERMEDIATION: LINKING CONTRACT THEORY TO ECONOMETRIC POLICY EVALUATION. Macroeconomic Dynamics, 13 , pp 268-316 doi:10.1017/S1365100509090178 https://orcid.org/0000-0002-1528-8102 en_US http://dx.doi.org/10.1017/s1365100509090178 Macroeconomic Dynamics Attribution-Noncommercial-Share Alike 3.0 Unported http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Cambridge University Press via Jenn Hunt [jhunt2@uchicago.edu], after Prof. Townsend requested her to submit |
| spellingShingle | Townsend, Robert Urzula, Sergio S. Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title | Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title_full | Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title_fullStr | Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title_full_unstemmed | Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title_short | Measuring the Impact of Financial Intermediation: Linking Contract Theory to Econometric Policy Evaluation |
| title_sort | measuring the impact of financial intermediation linking contract theory to econometric policy evaluation |
| url | http://hdl.handle.net/1721.1/51038 https://orcid.org/0000-0002-1528-8102 |
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