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Chained Credit Contracts and Financial Accelerators

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  • Naohisa Hirakata

    (Deputy Director, Research and Statistics Department, Bank of Japan. (E-mail: naohisa.hirakata@boj.or.jp))

  • Nao Sudo

    (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan. (E-mail: nao.sudou@boj.or.jp))

  • Kozo Ueda

    (Director, Institute for Monetary and Economic Studies, Bank of Japan. (E-mail: kouzou.ueda@boj.or.jp))

Abstract

Based on the financial accelerator model of Bernanke et al. (1999), we develop a dynamic general equilibrium model for a chain of credit contracts in which financial intermediaries (hereafter FIs) as well as entrepreneurs are subject to credit constraints. Financial intermediation takes place through chained-credit contracts, lending from the market to FIs, and from FIs to entrepreneurs. Calibrated to U.S. data, our model shows that the chained credit contracts enhance the financial accelerator effect, depending on the net worth distribution across sectors: (1) our model reinforces the effects of the net worth shock and the technology shock, compared with a model that omits the FIs' credit friction a la Bernanke et al. (1999); (2) the sectoral shock to FIs has a greater impact than the sectoral shock to entrepreneurs; and (3) the redistribution of net worth from entrepreneurs to FIs reduces the amplification of the technology shock. The key features of the results arise from the asymmetry of the two borrowing sectors: smaller net worth and larger bankruptcy costs of FIs relative to those of entrepreneurs.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-30.

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Date of creation: Nov 2009
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Handle: RePEc:ime:imedps:09-e-30

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Keywords: Chain of Credit Contracts; Net Worth of Financial Intermediaries; Cross-sectional Net Worth Distribution; Financial Accelerator effect;

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References

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  1. Stefano NERI & Luca SESSA & Federico SIGNORETTI & Andrea GERALI, 2009. "Credit and Banking in a DSGE model," 2009 Meeting Papers 586, Society for Economic Dynamics.
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  18. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2013. "Capital Injection, Monetary Policy, and Financial Accelerators," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 101-145, June.
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Citations

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Cited by:
  1. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2010. "Do Banking Shocks Matter for the U.S. Economy?," IMES Discussion Paper Series 10-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Luk, Sheung Kan & Vines, David, 2011. "Financial-Friction Macroeconomics with Highly Leveraged Financial Institutions," CEPR Discussion Papers 8576, C.E.P.R. Discussion Papers.
  3. Dilyana Dimova, 2012. "The Role of Consumer Leverage in Generating Financial Crises," Economics Series Working Papers 631, University of Oxford, Department of Economics.
  4. Ueda, Kozo, 2012. "Banking globalization and international business cycles: Cross-border chained credit contracts and financial accelerators," Journal of International Economics, Elsevier, vol. 86(1), pages 1-16.
  5. Güneş Kamber & Christoph Thoenissen, 2013. "Financial Exposure and the International Transmission of Financial Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 127-158, December.
  6. Ryo Kato & Takayuki Tsuruga, 2012. "Bank Overleverage and Macroeconomic Fragility," Discussion papers e-12-002, Graduate School of Economics Project Center, Kyoto University, revised Mar 2013.
  7. PIROVANO, Mara, 2013. "International financial integration, credit frictions and exchange rate regimes," Working Papers 2013015, University of Antwerp, Faculty of Applied Economics.
  8. Ansgar Rannenberg, 2012. "Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics," Working Paper Research 224, National Bank of Belgium.
  9. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2011. "Capital Injection, Monetary Policy, and Financial Accelerators," IMES Discussion Paper Series 11-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
  10. Fabio Fornari & Livio Stracca, 2012. "What does a financial shock do? First international evidence," Economic Policy, CEPR & CES & MSH, vol. 27(71), pages 407-445, 07.
  11. Shigenori Shiratsuka & Wataru Takahashi & Yuki Teranishi & Kozo Ueda, 2010. "Future of Central Banking under Globalization: Summary of the 2010 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 10-E-21, Institute for Monetary and Economic Studies, Bank of Japan.
  12. Ali Dib, 2010. "Capital Requirement and Financial Frictions in Banking: Macroeconomic Implications," Working Papers 10-26, Bank of Canada.
  13. Lawrence Christiano & Daisuke Ikeda, 2011. "Government Policy, Credit Markets and Economic Activity," NBER Working Papers 17142, National Bureau of Economic Research, Inc.

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