Collateralized capital and news-driven cycles
Keiichiro Kobayashi and
Economics Bulletin, 2007, vol. 5, issue 18, 1-9
Kobayashi, Nakajima, and Inaba (2007) show that in the neoclassical business cycle models with collateral constraints, a boom can be generated in response to an optimistic change in expectations on the future state of the economy. They call this business cycle a news-driven cycle. In their models, land is used as collateral, and borrowing for working capital is limited by the value of collateralized land. We simplify their model to the one without land. We show that in the economy where capital goods are used as collateral, the news-driven cycles can be generated.
JEL-codes: E3 G1 (search for similar items in EconPapers)
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