Credit Cycles / Nobuhiro Kiyotaki, John Moore.

Format:

Book

Author/Creator:

Kiyotaki, Nobuhiro.

Contributor:

National Bureau of Economic Research.

Moore, John.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5083.

NBER working paper series no. w5083

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

This paper is a theoretical study into how credit constraints interact with aggregate economic activity over the business cycle. 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 such as land, buildings and machinery play a dual role: they are not only factors of production, but they also serve as collateral for loans. Borrowers' credit limits are affected by the prices of the collateralized assets. And at the same time, these prices are affected by the size of the credit limits. 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.

Notes:

Print version record

April 1995.