EconPapers    
Economics at your fingertips  
 

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) Downloads
Working Paper: Leverage and deepening business cycle skewness (2017) Downloads
Working Paper: Leverage and Deepening. Business Cycle Skewness (2017) Downloads
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 ().

 
Page updated 2025-03-31
Handle: RePEc:cpr:ceprdp:12239