Collaterals and Macroeconomic Volatility

Riham Barbar () and Stefano Bosi
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Stefano Bosi: EQUIPPE, University of Lille 1

No 08-15, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper, we study the effects of collaterals on business cycles and growth in monetary economies with credit market imperfections. We consider an endogenous growth model with a partial cash-in-advance constraint and inelastic labor supply. We assume that the share of consumption purchases paid with credit depends positively on the collateral available to the agent. In this framework, we find that money is no longer superneutral in the long run and short-run fluctuations, either deterministic or stochastic, can arise. On the one side, the monetary policy can enhance the growth rate and welfare, on the other side, reduce the macroeconomic volatility. Second, the sensitivity to collaterals alters the effectiveness of monetary policy in terms of welfare and stability. Finally, indeterminacy becomes more likely as long as the credit market is less sensitive to collaterals.

Keywords: liquidity constraint; superneutrality; endogenous fluctuations (search for similar items in EconPapers)
JEL-codes: D90 E32 E41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008
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Related works:
Journal Article: Collaterals and macroeconomic volatility (2010)
Working Paper: Collaterals and macroeconomic volatility (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:08-15

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