Leverage and Deepening Business Cycle Skewness
Ivan Petrella,
Henrik Jensen,
Søren Hove Ravn and
Emiliano Santoro
No 12239, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
We document that the U.S. and other G7 economies have been characterized by an increasingly negative business cycle asymmetry over the last three decades. This finding can be explained by the concurrent increase in the financial leverage of households and firms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Improved access to credit increases the likelihood that financial constraints become non-binding in the face of expansionary shocks, allowing agents to freely substitute intertemporally. Contractionary shocks, on the other hand, are further amplified by drops in collateral values, since constraints remain binding. As a result, booms become progressively smoother and more prolonged than busts. Finally, in line with recent empirical evidence, financially-driven expansions lead to deeper contractions, as compared with equally-sized non-financial expansions.
Keywords: Credit constraints; Business cycles; Skewness; Deleveraging (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-bec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)
Downloads: (external link)
https://cepr.org/publications/DP12239 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: Leverage and Deepening Business-Cycle Skewness (2020) 
Working Paper: Leverage and deepening business cycle skewness (2017) 
Working Paper: Leverage and Deepening. Business Cycle Skewness (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:cpr:ceprdp:12239
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12239
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().