Financial Disruption and State Dependant Credit Policy

Thibaud Cargoet and Jean-Christophe Poutineau ()
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Thibaud Cargoet: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Jean-Christophe Poutineau: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper analyses how long credit policy measures should last to restore a normal function-ning of the loan market. We build a DSGE model where financial intermediaries and non financial agents face balance sheet constraints. Our results are two. First, we find that a credit policy has an intertemporal effect as it smoothes the negative shock along a greater number of periods. It dampens the inital negative consequences of financial shocks at the expense of a higherlength of the uncoventional period. Second, accounting for the joint effect of shocks on the length of the starurated period and on the fluctuation of activity in the transitory period back to the steady state situation, we find that the positive effect of this policy requires some qualification. For the benchmark calibration, conducting such a policy affects activity positively. However, for a high value of firm's leverage we find that unconventional monetary policy can be counterproductive. Ignoring credit policy will generate higher short run losses in activity but the transition to the steady state would be quicker, implying lower short run activity losses than those encountered with a credit policy where the transition to the steady state would last longer.

Keywords: Financial Frictions; Financial Accelerator; DSGE model (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01683785
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Published in Economic Modelling, 2018, 68, pp.249 - 272. ⟨10.1016/j.econmod.2017.07.018⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01683785

DOI: 10.1016/j.econmod.2017.07.018

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