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Credit crunch in a model of financial intermediation and occupational choice

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  • Yuan, Mingwei
  • Zimmermann, Christian

Abstract

In this paper, we introduce a dynamic general equilibrium model with numerous and heterogeneous investment projects and endogenous occupational choice to study a credit crunch. The investment decision is determined through the occupational choice of households which is driven by the endogenous accumulation of assets as they face various employment and return risks over a long lifetime. Consistent with empirical evidence, the origin of a credit crunch may be found in the conservative lending policies by banks during periods of financial duress and reduced profitability, but not informational problems as in the extant literature. Monetary policy is shown to be largely ineffective in alleviating the credit crunch, while flexible loan regulation can erase it. Dans ce papier, nous introduisons un modèle d'équilibre général dynamique avec de nombreux projets d'investissement hétérogènes et des choix endogènes d'occupation pour étudier une contraction excessive du crédit. La décision d'investissement est déterminée par l'intermédiaire du choix occupationnel du ménage, lui-même dépendant de l'accumulation endogène d'actifs en raison de divers risques d'emploi et de rendement sur une longue durée de vie. Comme cela est indiqué par l'évidence empirique, l'origine d'une contraction excessive du crédit peut être trouvée dans les politiques de crédit conservatrices des banques lors de périodes contraintes financières et de profitabilité réduite, mais sans les problèmes d'information nécessaires dans le reste de la littérature. La politique monétaire s'avère être en grande partie inefficace à combattre ce resserrement du crédit, alors qu'une réglementation flexible des crédits y parvient.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 26 (2004)
Issue (Month): 4 (December)
Pages: 637-659

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Handle: RePEc:eee:jmacro:v:26:y:2004:i:4:p:637-659

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Web page: http://www.elsevier.com/locate/inca/622617

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  1. Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
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  10. Joe Peek & Eric Rosengren, 1991. "The capital crunch: neither a borrower nor a lender be," Working Papers 91-4, Federal Reserve Bank of Boston.
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  17. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
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Cited by:
  1. Martin Berka & Christian Zimmermann, 2011. "Basel Accord and financial intermediation: the impact of policy," Working Papers 2011-042, Federal Reserve Bank of St. Louis.
  2. Shaffer, Sherrill & Hoover, Scott, 2008. "Endogenous screening, credit crunches, and competition in laxity," Review of Financial Economics, Elsevier, vol. 17(4), pages 296-314, December.
  3. Norrbin, Stefan, 2001. "What Have We Learned from Empirical Tests of the Monetary Transmission Effect," Working Paper Series 121, Sveriges Riksbank (Central Bank of Sweden).
  4. Jonas Dovern & Carsten-Patrick Meier & Johannes Vilsmeier, 2008. "How Resilient is the German Banking System to Macroeconomic Shocks?," Kiel Working Papers 1419, Kiel Institute for the World Economy.
  5. Alvaro Aguiar & Inês Drumond, 2007. "Monetary Policy Amplification Effects through a Bank Capital Channel," Money Macro and Finance (MMF) Research Group Conference 2006 47, Money Macro and Finance Research Group.

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