Optimal Credit Cycles

Zachary Bethune, Tai-Wei Hu and Guillaume Rocheteau
Additional contact information
Tai-Wei Hu: Northwestern University

Review of Economic Dynamics, 2018, vol. 27, 231-245

Abstract: Under which conditions are extrinsic credit fluctuations socially optimal? In order to answer this question we characterize constrained-efficient allocations in an infinite horizon, two-good economy with limited commitment for two market structures, random pairwise meetings and centralized meetings. If agents meet bilaterally, then constrained-efficient allocations specify the highest stationary output level that is incentive feasible, and it is implemented with take-it-or-leave-it offers and "not-too-tight" solvency constraints. If agents meet in a centralized location, constrained-efficient allocations can be non-stationary, in which case they feature a credit boom followed by stagnation due to "too-tight" solvency constraints. We also characterize constrained-efficient allocations under partial commitment by the planner. If commitment is low, the economy experiences rare but pronounced credit crunches. If commitment is high, the economy experiences infrequent but large credit booms. (Copyright: Elsevier)

Keywords: Credit cycles; Limired commitment; Money (search for similar items in EconPapers)
JEL-codes: D83 E32 E51 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2017.07.004
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Optimal Credit Cycles" (2017)
Working Paper: Online Appendix to "Optimal Credit Cycles" (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:17-63

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2017.07.004

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().