Credit cycles

Nobuhiro Kiyotaki, John Moore

Research output: Contribution to journalArticle

2081 Scopus citations

Abstract

We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production, but they also serve as collateral for loans. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. We show that small, temporary shocks to technology or income distribution can generate large, persistent fluctuations in output and asset prices.

Original languageEnglish (US)
Pages (from-to)211-248
Number of pages38
JournalJournal of Political Economy
Volume105
Issue number2
DOIs
StatePublished - Jan 1 1997
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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