Collaterals and macroeconomic volatility

Riham Barbar and Stefano Bosi ()
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Riham Barbar: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne
Stefano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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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. It is assumed that the share of consumption purchases paid on credit depends positively on the collaterals available to the agent. In this case, money is no longer superneutral. We find that, under mild inflation rates, a higher money growth rate is welfare-improving and, surprisingly, it makes the occurrence of expectations-driven fluctuations less likely. The shape of credit share in consumption purchases, as outcome of regulatory policies, has an impact on both welfare and stability. In particular, the higher the sensitivity of the credit share to collaterals, the more stable the economy under rational expectations. These analytical findings are complemented by economic interpretations. © 2010 University of Venice.

Keywords: Endogenous fluctuations; Cash-in-advance; Balanced growth; Superneutrality (search for similar items in EconPapers)
Date: 2010-09
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Published in Research in Economics, 2010, 64 (3), pp.146--161. ⟨10.1016/j.rie.2010.03.002⟩

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Related works:
Journal Article: Collaterals and macroeconomic volatility (2010)
Working Paper: Collaterals and Macroeconomic Volatility (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02877979

DOI: 10.1016/j.rie.2010.03.002

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