QUANTITATIVE IMPLICATIONS OF THE CREDIT CONSTRAINT IN THE KIYOTAKI-MOORE (1997) SETUP

Andrés Arias ()

No 3412, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: The Kiyotaki-Moore (1997) framework is a prominent macro model that features credit constraints as an important factor that propagates and magnifies the effects of shocks. However, the quantitative importance of these constraints in this setup remains an open question. This paper introduces the Kiyotaki-Moore (1997) setup into an otherwise standard dynamic general equilibrium model to explore the quantitative properties of credit constraints. I take a Hansen (1985)- type RBC model and introduce a banking sector that intermediates savings and investment. After calibrating the model to post-1959 U.S. data, I evaluate the propagation and magnification effects of a standard TFP shock to the aggregate economy. I find that the quantitative importance is very small. I then ask if the propagation and magnification effects are stronger if the shock originates in the banking sector. I therefore introduce TFP shocks into financial intermediation. I find that the constraints are also quantitatively unimportant. I conclude that the quantitative significance of the credit constraint in the Kiyotaki-Moore setup is small. The reason underlying this result has to do, theoretically, with asset market dynamics and, empirically, with the low participation of loans in economic activity in the U.S.

Keywords: Credit; constraint (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 82
Date: 2003-11-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repositorio.uniandes.edu.co/bitstream/handle/1992/8547/dcede2003-28.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000089:003412

Access Statistics for this paper

More papers in Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE Contact information at EDIRC.
Bibliographic data for series maintained by Universidad De Los Andes-Cede ().