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Endogenous cycles in a competitive search credit market

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  • Gu, Chao

Abstract

This paper studies a model of credit based on Gu et al. (2013) with limited commitment and endogenous debt limits in a competitive search market. The credit market exhibits inherent volatility in various ways, depending on whether free entry is allowed. With no free entry, there are deterministic and stochastic cycles even though the fundamentals are deterministic and time invariant. With free entry, there are multiple positive steady states and stochastic cycles including recurrent market freezes and thaws. However, deterministic cycles disappear.

Suggested Citation

  • Gu, Chao, 2023. "Endogenous cycles in a competitive search credit market," Economics Letters, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002501
    DOI: 10.1016/j.econlet.2023.111225
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    References listed on IDEAS

    as
    1. Chao Gu & Fabrizio Mattesini & Cyril Monnet & Randall Wright, 2013. "Endogenous Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 940-965.
    2. Kalai, Ehud, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Econometrica, Econometric Society, vol. 45(7), pages 1623-1630, October.
    3. Bethune, Zachary & Hu, Tai-Wei & Rocheteau, Guillaume, 2018. "Indeterminacy in credit economies," Journal of Economic Theory, Elsevier, vol. 175(C), pages 556-584.
    4. Boragan Aruoba, S. & Rocheteau, Guillaume & Waller, Christopher, 2007. "Bargaining and the value of money," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2636-2655, November.
    5. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
    6. Randall Wright & Philipp Kircher & Benoît Julien & Veronica Guerrieri, 2021. "Directed Search and Competitive Search Equilibrium: A Guided Tour," Journal of Economic Literature, American Economic Association, vol. 59(1), pages 90-148, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Competitive search; Credit; Debt; Cycles; Dynamics;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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