The collateral constraint as the resale value of capital
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Financial shocks are responsible for large fluctuations in real as well as financial variables. To explore a potential link between real shocks and financial conditions, I study a real business cycle model with collateral constraints. I modify the RBC model of Jermann and Quadrini (2012) by interpreting the borrowing limit for firms as the resale value of the capital they offer as collateral. For reasonable specifications of investment adjustment costs, the dynamic responses of my model mirror those of the original. The similar performance of my model suggests that the resale value of capital may be a channel by which real shocks affect the collateral constraint.