Credit Market Development, Asset Prices and Business Cycle
AbstractThis paper studies the role of credit market development in an economy with credit frictions. I examine how the provision of credit in connection with collateral assets affects economic performance and the business cycle. In the framework of an economy in which credit constraints arise because borrowers cannot force lenders to repay, I show that, as expected, facilitating collateralized debt financing implies an increase in eÃÂ¢ ciency in terms of production. Moreover, I also show how the rise in collateral/asset prices is a direct consequence of credit market development. Last, but most intriguing I demonstrate that, to a certain extent, a stronger impact of shocks is associated with a higher degree of access to the credit market. Economies at an intermediate level of credit market development are more vulnerable to shocks
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2005 with number 74.
Date of creation: 03 Sep 2005
Date of revision:
Contact details of provider:
Web page: http://www.essex.ac.uk/afm/mmf/index.html
Other versions of this item:
- Caterina Mendicino, 2005. "Credit Market Development, Asset Prices and Business Cycle," Computing in Economics and Finance 2005 120, Society for Computational Economics.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-DGE-2006-03-05 (Dynamic General Equilibrium)
- NEP-FMK-2006-03-05 (Financial Markets)
- NEP-MAC-2006-03-05 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- S. Rao Aiyagari, 1994. "Macroeconomics with frictions," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 24-40.
- Cordoba, Juan Carlos & Ripoll, Marla, 2010.
"Credit Cycles Redux,"
Staff General Research Papers
32122, Iowa State University, Department of Economics.
- Borja Larrain, 2004. "Financial development, financial constraints, and the volatility of industrial output," Public Policy Discussion Paper 04-6, Federal Reserve Bank of Boston.
- Tullio Jappelli & Marco Pagano, 1998.
"The Determinants of Savings: Lessons from Italy,"
CSEF Working Papers
01, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Jan Vlieghe, 2004. "Imperfect credit markets and the transmission of macroeconomic shocks," Money Macro and Finance (MMF) Research Group Conference 2004 17, Money Macro and Finance Research Group.
- Mark Gertler, 1988.
"Financial structure and aggregate economic activity: an overview,"
Federal Reserve Bank of Cleveland, pages 559-596.
- Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-88, August.
- Mark L. Gertler, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," NBER Working Papers 2559, National Bureau of Economic Research, Inc.
- Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 163-177.
- Bernanke, Ben S, 1984.
"Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data,"
The Quarterly Journal of Economics,
MIT Press, vol. 99(3), pages 587-614, August.
- Ben S. Bernanke, 1981. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," NBER Working Papers 0756, National Bureau of Economic Research, Inc.
- Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10.
- Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 2000.
"Identifying the macroeconomic effect of loan supply shocks,"
00-2, Federal Reserve Bank of Boston.
- Peek, Joe & Rosengren, Eric S & Tootell, Geoffrey M B, 2003. " Identifying the Macroeconomic Effect of Loan Supply Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 931-46, December.
- Leslie Hull, 2003. "Financial deregulation and household indebtedness," Reserve Bank of New Zealand Discussion Paper Series DP2003/01, Reserve Bank of New Zealand.
- Matteo Iacoviello, 2005.
"House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle,"
American Economic Review,
American Economic Association, vol. 95(3), pages 739-764, June.
- 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.
- Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
- Einarsson, Tor & Marquis, Milton H, 2001. "Bank Intermediation over the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 876-99, November.
- Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000.
"Does Financial Reform Raise or Reduce Saving?,"
The Review of Economics and Statistics,
MIT Press, vol. 82(2), pages 239-263, May.
- James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
- Sebastian Barnes & Garry Young, 2003. "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England.
- Hansen, Jan, 2003. "Financial Cycles and Bankruptcies in the Nordic Countries," Working Paper Series 149, Sveriges Riksbank (Central Bank of Sweden).
- 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.
- Jappelli, Tullio & Pagano, Marco, 1988.
"Consumption and Capital Market Imperfection: An International Comparison,"
CEPR Discussion Papers
244, C.E.P.R. Discussion Papers.
- Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.