The Anatomy of a Credit Crunch

Yongseok Shin, Roberto Fattal Jaef and Francisco Buera
Additional contact information
Roberto Fattal Jaef: UCLA

No 1190, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: What are the micro and macro implications of a credit crunch? We study this question in a model where heterogeneous entrepreneurs can finance their investment by borrowing subject to collateral constraints and/or by using internal funds. We discipline our theory by requiring that the size distribution and the dynamics of establishments in the model match those in the US data. We model a credit crunch in two complementary ways: (1) an unanticipated and temporary tightening of the collateral constraint; (2) an unanticipated and temporary increase in the wedge between deposit and lending rates. We show that a credit crunch has substantial impact on the size distribution and the dynamics of establishments, as well as on aggregate TFP and investment. In particular, the effects of a credit crunch differ significantly from those of exogenous TFP shocks. We compare our model predictions with the observed dynamics of establishments in the US during recessions to determine whether credit shocks are the main driving force behind aggregate fluctuations.

Date: 2010
References: Add references at CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2010/paper_1190.pdf (application/pdf)

Related works:
Working Paper: The Anatomy of a Credit Crunch (2011)
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:red:sed010:1190

Access Statistics for this paper

More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().