A model of borrower reputation as intangible collateral
AbstractIn this paper, we build a framework which can generate endogenous fluctuations in downpayment requirements. We extend the model of Kiyotaki and Moore (1997) by considering an environment, in which savers can keep their anonymity but borrowers cannot. This allows lenders to punish defaulting borrowers by excluding them from future borrowing. They cannot however stop them from saving in the anonymous financial market. We show how the possibility of such market exclusion can lead to the emergence of intangible collateral in equilibrium alongside the tangible collateral which is usually studied in the literature. Fluctuations in the value of intangible collateral are isomorphic to fluctuations in the amount of borrowing firms can secure against the value of their tangible assets. We find that, when we combine the intangible collateral mechanism in our paper with counter-cyclical variance of idiosyncratic productivity shocks, this helps to generate realistic negative co-movement of downpayment requirements and aggregate output over the business cycle. In this case, the presence of intangible collateral increases the amplification of business cycle fluctuations relative to the standard Kiyotaki-Moore (1997) model.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32939.
Date of creation: 2011
Date of revision:
Collateral constraints; Aggregate fluctuations;
Other versions of this item:
- Nikolov, Kalin, 2012. "A model of borrower reputation as intangible collateral," Working Paper Series 1490, European Central Bank.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-BAN-2011-08-29 (Banking)
- NEP-DGE-2011-08-29 (Dynamic General Equilibrium)
- NEP-MAC-2011-08-29 (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.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- A model of borrower reputation as intangible collateral
by Christian Zimmermann in NEP-DGE blog on 2013-01-15 02:39:13
- Kosuke Aoki & Kalin Nikolov, 2011.
"Bubbles, Banks, and Financial Stability,"
IMES Discussion Paper Series
11-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
- Aoki, Kosuke & Nikolov, Kalin, 2012. "Bubbles, banks and financial stability," Working Paper Series 1495, European Central Bank.
- Kosuke Aoki & Kalin Nikolov, 2011. "Bubbles, Banks, and Financial Stability," CARF F-Series CARF-F-253, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
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