CREDIT CYCLES REDUX

Juan Cordoba and Marla Ripoll

International Economic Review, 2004, vol. 45, issue 4, 1011-1046

Abstract: Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a "knife-edge" type of result. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2004
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Working Paper: Credit Cycles Redux (2002)
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