Aggregate Implications of a Credit Crunch / Francisco J. Buera, Benjamin Moll.

Format:

Book

Author/Creator:

Buera, Francisco J.

Contributor:

National Bureau of Economic Research.

Moll, Benjamin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17775.

NBER working paper series no. w17775

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

We take an off-the-shelf model with financial frictions and heterogeneity, and study the mapping from a credit crunch, modeled as a shock to collateral constraints, to simple aggregate wedges. We study three variants of this model that only differ in the form of underlying heterogeneity. We find that in all three model variants a credit crunch shows up as a different wedge: efficiency, investment, and labor wedges. Furthermore, all three model variants have an undistorted Euler equation for the aggregate of firm owners. These results highlight the limitations of using representative agent models to identify sources of business cycle fluctuations.

Notes:

Print version record

January 2012.