Credit Horizons

Nobuhiro Kiyotaki, John Moore and Shengxing Zhang

No 28742, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Entrepreneurs appear to borrow largely against their near-term revenues, even when their investment has a longer horizon. In this paper, we develop a model of credit horizons. A question of particular concern to us is whether persistently low interest rates can stifle economic activity. With this in mind, our model is of a small open economy where the world interest rate is taken to be exogenous. We show that a permanent fall in the interest rate can reduce aggregate investment and growth, and even lead to a drop in the welfare of everyone in the domestic economy. We use our framework to examine how credit horizons interact with plant dynamics and the evolution of productivity. Finally, we speculate that the measurement of total investment may camouflage the true level of productive investment in plant and human capital, and give too rosy a picture of property-fuelled booms sparked by low interest rates.

JEL-codes: E44 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mac
Note: EFG
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w28742.pdf (application/pdf)

Related works:
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:nbr:nberwo:28742

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28742

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().