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Credit rationing, output gap, and business cycles

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  • Boissay, Frédéric

Abstract

The cost-of-financing channel version of the financial accelerator proposed by Bernanke & Gertler [1989] is prominent in the literature. Yet, this particular channel has not been validated by empirical work. This paper presents an alternative version of the accelerator. This new accelerator, based on quantity credit rationing, is shown to be more powerful than the traditional accelerator. By causing factor under-utilization credit rationing generates an output gap persistent and sensitive to technology shocks. This accelerator is not a substitute to the traditional mechanism though, but rather a complement. My model helps improve the understanding of financial transmission mechanisms. It considers several types of collaterals. Financial frictions generate persistence when collaterals take the form of tangible assets. They generate amplification when collaterals take the form of cash flows or when asset prices are variable. JEL Classification: E32, E44

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Paper provided by European Central Bank in its series Working Paper Series with number 0087.

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Date of creation: Nov 2001
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Handle: RePEc:ecb:ecbwps:20010087

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Cited by:
  1. Waters, George A., 2013. "Quantity rationing of credit and the Phillips curve," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 68-80.
  2. Roman Horváth, 2006. "Financial Accelerator Effects in the Balance Sheets of Czech Firms," William Davidson Institute Working Papers Series wp847, William Davidson Institute at the University of Michigan.
  3. Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "Modeling Credit Aggregates," Working Papers 90, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Jarko Fidrmuc & Roman Horváth & Eva Horváthová, 2010. "Corporate Interest Rates and the Financial Accelerator in the Czech Republic," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(4), pages 41-54, January.
  5. Sylvia Kaufmann & Maria Teresa Valderrama, 2008. "Bank lending in Germany and the UK: are there differences between a bank-based and a market-based country?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 266-279.

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