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Collateral Constraint And News-Driven Cycles

  • Kobayashi, Keiichiro
  • Nakajima, Tomoyuki
  • Inaba, Masaru

We also show that when the news turns out to be wrong, the economy may fall into a recession, instead of simply jumping back to the initial steady state. This is because, when the good news arrives, borrowers sell their land, since they need less land to achieve the desired value of collateral. When the news turns out to be wrong, the land price goes back to its steady state level, and hence the total value of collateral becomes lower than the steady state level. It follows that the financial constraint becomes tighter, which increases the labor market inefficiency, and reduces labor, output, and so on.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 16 (2012)
Issue (Month): 05 (November)
Pages: 752-776

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Handle: RePEc:cup:macdyn:v:16:y:2012:i:05:p:752-776_00
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  1. Harald Uhlig, 1998. "A Toolkit for Analysing Nonlinear Dynamic Stochastic Models Easily," QM&RBC Codes 123, Quantitative Macroeconomics & Real Business Cycles.
  2. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis.
  4. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
  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. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc.
  7. Paul Beaudry & Franck Portier, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?," NBER Working Papers 10776, National Bureau of Economic Research, Inc.
  8. Enrique G. Mendoza, 2006. "Endogenous Sudden Stops in a Business Cycle Model with Collateral Constraints:A Fisherian Deflation of Tobin's Q," NBER Working Papers 12564, National Bureau of Economic Research, Inc.
  9. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  10. Beaudry, Paul & Portier, Franck, 2005. "The 'News' View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral US Data," CEPR Discussion Papers 5176, C.E.P.R. Discussion Papers.
  11. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
  12. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
  13. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
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