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A model of borrower reputation as intangible collateral

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  • Nikolov, Kalin

Abstract

In this paper, we build a Kiyotaki-Moore style collateral amplification framework which generates large endogenous fluctuations in the leverage available to investing firms. We assume that defaulting borrowers lose not only their tangible collateral but also their future debt market access. The possibility of such market exclusion can lead to the emergence of intangible collateral in equilibrium alongside the tangible collateral which is usually studied in the literature. Fluctuations in the value of intangible collateral are isomorphic to fluctuations in the downpayments they need to make in their purchases of productive assets. This modification of the Kiyotaki-Moore model substantially increases its amplification of exogenous shocks. JEL Classification: E44

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Paper provided by European Central Bank in its series Working Paper Series with number 1490.

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Date of creation: Nov 2012
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Handle: RePEc:ecb:ecbwps:20121490

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Keywords: aggregate fluctuations; Collateral constraints;

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  1. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  2. Francisco Covas & Wouter Denhaan, 2006. "The role of debt and equity finance over the business cycle," 2006 Meeting Papers 407, Society for Economic Dynamics.
  3. Juan-Carlos Cordoba & Marla Ripoll, 2004. "Credit Cycles Redux," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1011-1046, November.
  4. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
  5. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
  6. George-Marios Angeletos & Laurent E. Calvet, 2002. "Idiosyncratic Production Risk, Growth and the Business Cycle," Harvard Institute of Economic Research Working Papers 1952, Harvard - Institute of Economic Research.
  7. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  8. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. A model of borrower reputation as intangible collateral
    by Christian Zimmermann in NEP-DGE blog on 2013-01-15 02:39:13
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Cited by:
  1. Aoki, Kosuke & Nikolov, Kalin, 2012. "Bubbles, banks and financial stability," Working Paper Series 1495, European Central Bank.

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