Credit and business cycles

Research output: Contribution to journalArticle

52 Scopus citations

Abstract

This paper presents two dynamic models of the economy in which credit constraints arise because creditors cannot force debtors to repay debts unless the debts are secured by collateral. The credit system becomes a powerful propagation mechanism by which the effects of shocks persist and amplify through the interaction between collateral values, borrowers' net worth and credit limits. In particular, when fixed assets serve as collateral, I show that relatively small, temporary shocks to technology or wealth distribution can generate large, persistent fluctuations in output and asset prices.

Original languageEnglish (US)
Pages (from-to)18-35
Number of pages18
JournalJapanese Economic Review
Volume49
Issue number1
StatePublished - Jan 1 1998
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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