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Endogenous Cycles in Collateralized Credit

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  • VYACHESLAV ARBUZOV
  • YU AWAYA
  • HIROKI FUKAI
  • MAKOTO WATANABE

Abstract

This paper presents a simple and tractable equilibrium model, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, credit trade can fluctuate endogenously over time. In our theory, credit fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and lending volumes.

Suggested Citation

  • Vyacheslav Arbuzov & Yu Awaya & Hiroki Fukai & Makoto Watanabe, 2024. "Endogenous Cycles in Collateralized Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(2-3), pages 627-646, March.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:2-3:p:627-646
    DOI: 10.1111/jmcb.13029
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