Collaterals and Macroeconomic Volatility
AbstractIn this paper, we study the effects of collaterals on business cycles and growth in monetary economies with credit market imperfections. We consider an endogenous growth model with a partial cash-in-advance constraint and inelastic labor supply. We assume that the share of consumption purchases paid with credit depends positively on the collateral available to the agent. In this framework, we find that money is no longer superneutral in the long run and short-run fluctuations, either deterministic or stochastic, can arise. On the one side, the monetary policy can enhance the growth rate and welfare, on the other side, reduce the macroeconomic volatility. Second, the sensitivity to collaterals alters the effectiveness of monetary policy in terms of welfare and stability. Finally, indeterminacy becomes more likely as long as the credit market is less sensitive to collaterals.
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Bibliographic InfoPaper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 08-15.
Length: 23 pages
Date of creation: 2008
Date of revision:
liquidity constraint; superneutrality; endogenous fluctuations;
Find related papers by JEL classification:
- D90 - Microeconomics - - Intertemporal Choice - - - General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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