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Indexed debt contracts and the financial accelerator

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Author Info

  • Charles T Carlstrom
  • Timothy S Fuerst
  • Matthius Paustian

Abstract

This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the business cycle properties of the model are altered under this level of indexation.

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File URL: http://www.clevelandfed.org/research/Workpaper/2011/wp1117.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1117.

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Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedcwp:1117

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Keywords: Indexation (Economics) ; Financial markets;

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References

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  1. Goodfriend, Marvin & McCallum, Bennett T., 2007. "Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1480-1507, July.
  2. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  3. Olivier Jeanne & Anton Korinek, 2010. "Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach," Working Paper Series WP10-5, Peterson Institute for International Economics.
  4. Faia, Ester & Monacelli, Tommaso, 2007. "Optimal interest rate rules, asset prices, and credit frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3228-3254, October.
  5. Suarez,J. & Sussman,O., 1995. "Endogenous Cycles in a Stiglitz-Weiss Economy," Papers 9518, Centro de Estudios Monetarios Y Financieros-.
  6. repec:bla:restud:v:75:y:2008:i:3:p:809-833 is not listed on IDEAS
  7. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  8. De Fiore, Fiorella & Tristani, Oreste, 2009. "Optimal monetary policy in a model of the credit channel," Working Paper Series 1043, European Central Bank.
  9. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
  10. Krishnamurthy, Arvind, 2003. "Collateral constraints and the amplification mechanism," Journal of Economic Theory, Elsevier, vol. 111(2), pages 277-292, August.
  11. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
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Cited by:
  1. Woon Gyu Choi & David Cook, 2010. "Fire Sales and the Financial Accelerator," IMF Working Papers 10/141, International Monetary Fund.

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