Borrowing constraints and asset market dynamics: evidence from the Pacific Basin
AbstractThis paper estimates a linearized, stochastic version of Kiyotaki and Moore's (1997) credit cycle model, using land price data from Hong Kong, Japan, and Korea. It is shown that the welfare costs of borrowing constraints are positively related to the persistence of (detrended) land price fluctuations. When the residual demand curve for land is inelastic and the steady state share of land held by the constrained sector is less than 30 percent, welfare costs are less than 1 percent GDP in all countries. However, the strained sector becomes more important and as the elasticity of unconstrained land demand increases. For example, if the efficient share of the constrained sector is 50 percent and the residual demand elasticity is 2.0, then costs range from 9 percent of GDP in Korea, where fluctuations are relatively transitory, to 11 percent of GDP in Japan, where land price fluctuations are the most persistent.
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Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Economic Review.
Volume (Year): (1998)
Issue (Month): ()
Other versions of this item:
- Kenneth Kasa, 1998. "Borrowing constraints and asset market dynamics: evidence from the Pacific Basin," Pacific Basin Working Paper Series 98-04, Federal Reserve Bank of San Francisco.
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