Implications of collateral constraints for the term premium

Sungjun Huh and Insu Kim

Applied Economics Letters, 2024, vol. 31, issue 17, 1599-1607

Abstract: This study examines the impact of credit constraints on the term premium in a production economy. To do so, we incorporate the Kiyotaki-Moore collateral constraint and Epstein-Zin-Weil preferences into a medium-scale New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model with nominal rigidity. Our findings are twofold. First, credit constraint, a key ingredient of the financial accelerator channel, has significant effects on the term premium. Second, the loan-to-value ratio has non-linear effects on the term premium.

Date: 2024
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DOI: 10.1080/13504851.2023.2204212

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