Document Type

Honors Project - Open Access

Abstract

Intangible capital comprises an increasing share of total capital assets, and its non-physical nature makes it more difficult to evaluate and secure as collateral for loans. I extend the model of intangible capital presented in McGrattan and Prescott (2010) to include a collateralized credit market in which firms can obtain debt proportional to their capital assets. I consider different cases for the relative collateral value of intangibles under a credit constraint subject to exogenous shocks. For greater collateralizability of intangible assets, the model predicts a stronger negative relationship between intangible investment and credit availability and more stable interest rates. However, the model overall does not replicate observations from macroeconomic data.

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