Credit frictions and the comovement between durable and non-durable consumption
AbstractFrictions in lending between households have been proposed as a solution to the difficulties new-Keynesian models have in predicting a decline in both durable and non-durable consumption following a monetary tightening. By revisiting a standard new-Keynesian framework with collateral constraints, it is shown that the presence of such credit frictions in fact makes it more difficult to generate the joint decline. The intuitive reasons behind this result are provided, which should be helpful in developing models that are more successful in generating a positive comovement between durables and non-durables.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 57 (2010)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/inca/505566
New-Keynesian models Financial frictions General equilibrium;
Other versions of this item:
- Vincent Sterk, 2009. "Credit Frictions and the Comovement between Durable and Non-durable Consumption," DNB Working Papers 210, Netherlands Central Bank, Research Department.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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