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Credit Termination and the Technology Bubbles

Yu Jin ()

MPRA Paper from University Library of Munich, Germany

Abstract: We study the role of firms' credit histories in a business cycle model. Loans are dynamic contracts between banks and firms, and credit terminations are used as an incentive device. Banks deny future loans to an entrepreneur according to his credit histories in order to affect his choice of project ex ante. This will generate fluctuations from technology shocks to the riskiness of different types of projects as occurred during the technology bubbles. The model is used to explain the boom-and-bust of the dot-com bubble, one leading example of technology bubbles in the economy, in the late 1990s.

Keywords: credit terminations; technology bubbles (search for similar items in EconPapers)
JEL-codes: E32 G21 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-ent, nep-mac and nep-ppm
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