Collateral amplification under complete markets

Kalin Nikolov

Journal of Economic Dynamics and Control, 2014, vol. 45, issue C, 80-93

Abstract: This paper examines the robustness of the Kiyotaki–Moore collateral amplification mechanism to the existence of complete markets for aggregate risk. We show that, when borrowers can hedge against aggregate shocks at fair prices, the volatility of endogenous variables becomes identical to the first best in the absence of credit constraints. The collateral amplification mechanism disappears.

Keywords: Collateral constraints; Amplification (search for similar items in EconPapers)
JEL-codes: D52 E32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:45:y:2014:i:c:p:80-93

DOI: 10.1016/j.jedc.2014.05.015

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