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Credit Crises, Precautionary Savings, and the Liquidity Trap / Veronica Guerrieri, Guido Lorenzoni.
- Format:
- Book
- Author/Creator:
- Guerrieri, Veronica.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w17583.
- NBER working paper series no. w17583
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2011.
- Summary:
- We study the effects of a credit crunch on consumer spending in a heterogeneous-agent incomplete-market model. After an unexpected permanent tightening in consumers' borrowing capacity, some consumers are forced to deleverage and others increase their precautionary savings. This depresses interest rates, especially in the short run, and generates an output drop, even with flexible prices. The output drop is larger with nominal rigidities, if the zero lower bound prevents the interest rate from adjusting downwards. Adding durable goods to the model, households take larger debt positions and the output response may be larger.
- Notes:
- Print version record
- November 2011.
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