Endogenous cycles in a competitive search credit market

Chao Gu

Economics Letters, 2023, vol. 229, issue C

Abstract: This paper studies a model of credit based on Gu et al. (2013) with limited commitment and endogenous debt limits in a competitive search market. The credit market exhibits inherent volatility in various ways, depending on whether free entry is allowed. With no free entry, there are deterministic and stochastic cycles even though the fundamentals are deterministic and time invariant. With free entry, there are multiple positive steady states and stochastic cycles including recurrent market freezes and thaws. However, deterministic cycles disappear.

Keywords: Competitive search; Credit; Debt; Cycles; Dynamics (search for similar items in EconPapers)
JEL-codes: E20 E32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002501

DOI: 10.1016/j.econlet.2023.111225

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