Self‐fulfilling Credit Cycles Self-fulfilling Credit Cycles
نویسندگان
چکیده
This paper argues that self-fulfilling beliefs in credit conditions can generate endogenously persistent business cycle dynamics. We develop a tractable dynamic general equilibrium model with idiosyncratic firm productivity shocks. Capital from less productive firms is lent to more productive ones in the form of credit secured by collateral and also as unsecured credit based on reputation. A dynamic complementarity between current and future credit constraints permits uncorrelated sunspot shocks to trigger persistent aggregate fluctuations in debt, factor productivity and output. In a calibrated version we compare the features of sunspot cycles with those generated by shocks to economic fundamentals. JEL classification: D92, E32
منابع مشابه
Self-Fulfilling Credit Cycles
In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing co...
متن کاملCredit Market Imperfection, Labor Supply Complementarity, and Global Indeterminacy
The possibility of sunspot equilibria and endogenous cycles due to self-fulfilling expectations are explored in a one-sector overlapping-generations model with credit market imperfection. It is shown that a strategic complementarity between agent’s optimal labor supply decisions may arise when the credit market is imperfect. Multiplicity of steady states and local indeterminacy of equilibrium c...
متن کاملThe Effect of Macroeconomic Variables on Credit Default Cycles in the Country's Monetary Market
The main challenge facing the country's banking system is credit default or the possibility of defaulting borrowers from fulfilling their obligations to the banking system, known as credit risk. Therefore to control credit risk, the factors influencing this type of risk must be identified. Several factors affect credit default in the non-government sector. This study examines the asymmetric ef...
متن کاملAdverse Selection and Self-fulfilling Business Cycles∗
We develop a macroeconomic model with adverse selection. A continuum of households purchase goods from a continuum of anonymous producers. The quality of products can only be learned after trade. Adverse selection arises as low-quality goods deliver higher profits for producers but are less desirable for households. Higher aggregate demand induces more high-quality goods, raises average quality...
متن کاملIndeterminate Credit Cycles
We present a model with heterogeneous firms, in which credit constraints may give rise to self-fulfilling, sunspot-driven business cycle fluctuations. We derive optimal incentive-compatible loan contracts, under which a firm’s borrowing capacity is constrained by expected equity value. Interactions between debt and equity value made possible by credit constraints generate a credit externality, ...
متن کامل