Borrowing Constraints, Multiple Equilibria and Monetary Policy
The appealing feature of Kiyotaki and Moore's Financial Accelerator model (Kiyotaki and Moore, 1997, 2002) is the linkage of asset price changes and borrowing constraints. This framework therefore is the natural vehicle to explore the net worth channel of the monetary transmission mechanism. In the original model, however, all the variables, credit included, are in real terms. In order to assess the impact of monetary policy the model must be reformulated to fit a monetary economy. In the present paper we model a monetary economy with financing constraints adopting the Money In the Utility function (MIU) approach.The occurrence of multiple equilibria is a likely outcome of the dynamics generated by the model. A change in the growth rate of money supply can affect real output through the impact of inflation on net worth. In a sense the monetary transmission mechanism we are focusing on consists of a combination of the inflation tax effect and the net worth channel. Contrary to the traditional view, at least for some parameter restrictions, an increase of the inflation tax can bring about an increase of aggregate output.
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| Length: | |
| Date of creation: | 2007 |
| Handle: | RePEc:ams:ndfwpp:07-05 |
| Contact details of provider: | Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands Phone: + 31 20 525 52 58 Fax: + 31 20 525 52 83 Web page: http://www.fee.uva.nl/cendef/ Email: More information through EDIRC
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- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999.
"The financial accelerator in a quantitative business cycle framework,"
Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393
Elsevier.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
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- Juan Cordoba & Marla Ripoll, 2002. "Credit Cycles Redux," Macroeconomics 0210004, EconWPA.
- Cordoba, Juan Carlos & Ripoll, Marla, 2010. "Credit Cycles Redux," Staff General Research Papers Archive 32122, Iowa State University, Department of Economics.
- Cordoba, Juan & Ripoll, Marla, 2002. "Credit Cycles Redux," Working Papers 2002-07, Rice University, Department of Economics.
- 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.
- 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.
- Nobuhiro Kiyotaki & John Moore, 2002. "Evil Is the Root of All Money," American Economic Review, American Economic Association, vol. 92(2), pages 62-66, May.
- John Moore, 2001. "Evil is the Root of all Money," Annual Meeting Plenary 2001-3, Society for Economic Dynamics.
- Ben Bernanke & Mark Gertler, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 87-114.
- Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
- 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.
- Cordoba, Juan & Ripoll, Marla, 2002. "Collateral Constraints in a Monetary Economy," Working Papers 2002-02, Rice University, Department of Economics.
- Cordoba, Juan Carlos & Ripoll, Marla, 2010. "Collateral Constraints in a Monetary Economy," Staff General Research Papers Archive 32123, Iowa State University, Department of Economics.
- Juan Carlos Cordoba & Marla Ripoll, 2003. "Collateral Constraints in a Monetary Economy," Macroeconomics 0309003, EconWPA.
- Cooley, Thomas F. & Hansen, Gary D., 1998. "The role of monetary shocks in equilibrium business cycle theory: Three examples," European Economic Review, Elsevier, vol. 42(3-5), pages 605-617, May.
- 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.
- Nobuhiro Kiyotaki & John Moore, 2002. "Balance-Sheet Contagion," American Economic Review, American Economic Association, vol. 92(2), pages 46-50, May. Full references (including those not matched with items on IDEAS)
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