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Credit Traps and Credit Cycles

Author

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  • Kiminori Matsuyama

Abstract

We develop a simple macroeconomic model of credit market imperfections with heterogeneous investment projects. The projects differ in productivity, the investment requirement, and the severity of agency problems behind the borrowing constraints. A movement in borrower net worth shifts the composition of the credit between projects with different productivity levels, thereby causing endogenous investment-specific technological change. Furthermore, such endogenous technological change in turn affects borrower net worth. These composition effects could give rise to credit traps, credit collapse, leapfrogging, credit cycles, and growth miracles in the dynamics of the aggregate investment and borrower net worth. (JEL E22, E44, O33)

Suggested Citation

  • Kiminori Matsuyama, 2007. "Credit Traps and Credit Cycles," American Economic Review, American Economic Association, vol. 97(1), pages 503-516, March.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:1:p:503-516
    Note: DOI: 10.1257/aer.97.1.503
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    References listed on IDEAS

    as
    1. Hart, O. & Moore, J., 1991. "A Theory of Debt Based on the Inalienability of Human Capital," Working papers 592, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Matsuyama, Kiminori, 2013. "The good, the bad, and the ugly: An inquiry into the causes and nature of credit cycles," Theoretical Economics, Econometric Society, vol. 8(3), September.
    3. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-536, June.
    4. Nobuhiro Kiyotaki, 1988. "Multiple Expectational Equilibria Under Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 695-713.
    5. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    6. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
    7. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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