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Credit Cycles in a OLG Economy with Money and Bequest

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Author Info

  • Anna Agliari

    (Catholic University of Piacenza, Italy)

  • Tiziana Assenza

    (Catholic University of Milan, Italy)

  • Domenico Delli Gatti

    ()
    (Catholic University of Milan, Italy)

  • Emiliano Santoro

    (Cambridge University, UK)

Abstract

In this paper we develop an overlapping generation version of Kiyotaki and Moore's (hereafter KM) model of the "Credit Cycle". In each period the population consists of two classes of agents: a group of financially constrained agents ("farmers") and one of unconstrained agents ("gatherers"). Each class in turn consists of young and old agents.Each class of agents uses different technologies to produce the same perishable good ("fruit") by means of labour and "land". Land is a durable asset which plays the role not only of an input for production processes but also of collateralizable wealth to secure lenders from the risk of borrowers' default. In a context of intergenerational altruism, old agents leave a bequest to their offspring. Money enters the picture as a means of payment and a reserve of value because it enables to access consumption in old age. In the original paper in which people are infinitely lived (an money as such is absent), KM study the fluctuations following a technological shock. In the OLG version of the model, self susteained oscillations arise naturally. We study the complex dynamics of the allocation of land to farmers and gatherers -which determines aggregate output- and of the price of the durable asset. The next step is the analysis of the conditions under which money is or is not superneutral.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 369.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:369

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Keywords: Overlapping Generations; Financial Constraints; Credit Cycles;

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  1. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 77-114, February.
  2. 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.
  3. John Moore & Nobuhiro Kiyotaki, 2008. "Liquidity, Business Cycles, and Monetary Policy," 2008 Meeting Papers 35, Society for Economic Dynamics.
  4. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  5. Cordoba, Juan Carlos & Ripoll, Marla, 2010. "Credit Cycles Redux," Staff General Research Papers 32122, Iowa State University, Department of Economics.
    • 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.
  6. Juan Carlos Cordoba & Marla Ripoll, 2004. "Collateral Constraints in a Monetary Economy," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1172-1205, December.
  7. Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-76, April.
  8. Edison, Hali J & Luangaram, Pongsak & Miller, Marcus, 2000. "Asset Bubbles, Leverage and 'Lifeboats': Elements of the East Asian Crisis," Economic Journal, Royal Economic Society, vol. 110(460), pages 309-34, January.
  9. Bruce C. Greenwald & Joseph E. Stiglitz, 1990. "Macroeconomic Models with Equity and Credit Rationing," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 15-42 National Bureau of Economic Research, Inc.
  10. Kenneth Kasa, 1998. "Borrowing constraints and asset market dynamics: evidence from the Pacific Basin," Pacific Basin Working Paper Series 98-04, Federal Reserve Bank of San Francisco.
  11. 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.
  12. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 87-114, February.
  13. Nobuhiro Kiyotaki & John Moore, 2004. "Evil is the Root of all Money (Clarendon Lectures 1)," ESE Discussion Papers 110, Edinburgh School of Economics, University of Edinburgh.
  14. Matteo Iacoviello & Raoul Minetti, 2006. "Liquidity Cycles," 2006 Meeting Papers 676, Society for Economic Dynamics.
  15. Nobuhiro Kiyotaki & John Moore, 2002. "Balance-Sheet Contagion," American Economic Review, American Economic Association, vol. 92(2), pages 46-50, May.
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