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Credit Market Frictions And The Amplification-Persistence Trade-Off

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  • Patrick-Antoine Pintus

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

Abstract

The issue of how endogenous borrowing constraints lead to the amplification and persistence of aggregate shocks is revisited in this paper. Specifically, I show that an amplification-persistence trade-off is embodied in the setting proposed by Kiyotaki and Moore (1997). The key point is that while complex unit roots associated with persistence of temporary shocks require the fraction of credit-constrained firms to be small enough, large amplification relies on the opposite condition. Incidentally, I confirm the occurrence of periodic and quasi-periodic cycles around the determinate steady state.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00353602.

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Date of creation: 15 Jan 2009
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Handle: RePEc:hal:wpaper:halshs-00353602

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Related research

Keywords: Imperfect credit markets; complex unit roots; persistence and amplification; endogenous cycles;

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  1. Hyllerberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal Integration And Cointegration," Papers 0-88-2, Pennsylvania State - Department of Economics.
  2. Juan Cordoba & Marla Ripoll, 2002. "Credit Cycles Redux," Macroeconomics 0210004, EconWPA.
    • 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.
  3. Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10.
  4. Kiminori Matsuyama, 2007. "Credit Traps and Credit Cycles," American Economic Review, American Economic Association, vol. 97(1), pages 503-516, March.
  5. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1997. "Dualism and macroeconomic volatility," CEPREMAP Working Papers (Couverture Orange) 9720, CEPREMAP.
  6. Gregoir, Stephane, 2006. "Efficient tests for the presence of a pair of complex conjugate unit roots in real time series," Journal of Econometrics, Elsevier, vol. 130(1), pages 45-100, January.
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