CREDIT MARKET FRICTIONS AND THE AMPLIFICATION-PERSISTENCE TRADE-OFF

Patrick Pintus

Working Papers from HAL

Abstract: The issue of how endogenous borrowing constraints lead to the amplification and persistence of aggregate shocks is revisited in this paper. Specifically, I show that an amplification-persistence trade-off is embodied in the setting proposed by Kiyotaki and Moore (1997). The key point is that while complex unit roots associated with persistence of temporary shocks require the fraction of credit-constrained firms to be small enough, large amplification relies on the opposite condition. Incidentally, I confirm the occurrence of periodic and quasi-periodic cycles around the determinate steady state.

Keywords: Imperfect credit markets; complex unit roots; persistence and amplification; endogenous cycles (search for similar items in EconPapers)
Date: 2009-01-15
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