Amplification and Asymmetric Effects without Collateral Constraints

Dan Cao and Guangyu Nie

American Economic Journal: Macroeconomics, 2017, vol. 9, issue 3, 222-66

Abstract: The seminal contribution by Kiyotaki and Moore (1997) has spurred a vast literature on the importance of collateral constraints in propagating and amplifying shocks to the economy. However, most papers in the literature using collateral constraints assume non-state-contingent debt, i.e., markets are incomplete. To assess the relative importance of collateral constraints versus market incompleteness, we study a calibrated incomplete markets model and solve it with and without collateral constraints. We find that market incompleteness by itself plays a quantitatively significant role in the amplified and asymmetric responses of the economy, including land price and output, to exogenous shocks.

JEL-codes: D52 E32 E44 L26 O41 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mac.20150219
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Citations: View citations in EconPapers (24)

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