On the amplification role of collateral constraints

Caterina Mendicino

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: How important are collateral constraints for the propagation and amplification of shocks? To address this question, we analyze a stochastic general equilibrium version of the model by Kiyotaki and Moore (JPE, 1997) in which all agents face concave production and utility functions and are generally identical, except for the subjective discount factor. We document that the existence of costly debt enforcement plays an important role in the endogenous amplification generated by the model. Limiting the amount of borrowing up to a reasonable fraction of the value of the collateral asset, makes the amplification generated by collateral constraints sizable and significantly larger than what we observe either in the representative agent version of the model, or in the version of the model where inefficiencies in the liquidation of the collateralized asset are neglected.

JEL-codes: E20 E21 E3 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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https://www.bportugal.pt/sites/default/files/anexos/papers/wp201115.pdf

Related works:
Journal Article: On the amplification role of collateral constraints (2012)
Working Paper: On the Amplification Role of Collateral Constraints (2009)
Working Paper: On the Amplification Role of Collateral Constraints (2008)
Working Paper: On the amplification role of collateral constraints (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201115

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