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"Credit Cycle" in an OLG Economy with Money and Bequest

  • Agliari, A.
  • Assenza, T.

    ()

    (Universiteit van Amsterdam)

  • Delli Gatti, D.
  • Santoro, E.

In the late '90s Kiyotaki and Moore (KM) put forward a new framework (Kiyotaki and Moore,1997) to explore the Financial Accelerator hypothesis. The original model was framed in an Infinitely Lived Agent context (ILA-KM economy). As in KM we develop a dynamic model in which the durable asset ("land") is not only an input but also collateralizable wealth to secure lenders from the risk of borrowers' default. In this paper, however, we model an OLG-KM economy whose novel feature is the role of money as a store of value and of bequest as a vehicle of resources to be "invested" in landholding. The dynamics generated by the model are complex. Not only cyclical patterns are routinely generated but the periodicity and amplitude are irregular. A route to chaotic dynamics is open.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 07-04.

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Date of creation: 2007
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Handle: RePEc:ams:ndfwpp:07-04
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  1. Matteo Iacoviello & Raoul Minetti, 2006. "Liquidity Cycles," 2006 Meeting Papers 676, Society for Economic Dynamics.
  2. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  3. 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.
  4. Nobuhiro Kiyotaki & John Moore, 2001. "Evil is the Root of all Money (Clarendon Lectures 1)," ESE Discussion Papers 110, Edinburgh School of Economics, University of Edinburgh.
  5. 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.
  6. John Moore & Nobuhiro Kiyotaki, 2008. "Liquidity, Business Cycles, and Monetary Policy," 2008 Meeting Papers 35, Society for Economic Dynamics.
  7. 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.
  8. 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.
  9. Nobuhiro Kiyotaki & John Moore, 2002. "Balance-Sheet Contagion," American Economic Review, American Economic Association, vol. 92(2), pages 46-50, May.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
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