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A model of borrower reputation as intangible collateral

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  • Nikolov, Kalin

Abstract

In this paper, we build a Kiyotaki-Moore style collateral amplification framework which generates large endogenous fluctuations in the leverage available to investing firms. We assume that defaulting borrowers lose not only their tangible collateral but also their future debt market access. The possibility of such market exclusion can lead to the emergence of intangible collateral in equilibrium alongside the tangible collateral which is usually studied in the literature. Fluctuations in the value of intangible collateral are isomorphic to fluctuations in the downpayments they need to make in their purchases of productive assets. This modification of the Kiyotaki-Moore model substantially increases its amplification of exogenous shocks. JEL Classification: E44

Suggested Citation

  • Nikolov, Kalin, 2012. "A model of borrower reputation as intangible collateral," Working Paper Series 1490, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20121490
    Note: 288883
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    References listed on IDEAS

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    1. Angeletos, George-Marios & Calvet, Laurent-Emmanuel, 2006. "Idiosyncratic production risk, growth and the business cycle," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1095-1115, September.
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    7. Francisco Covas & Wouter den Haan, 2007. "Cyclical Behavior of Debt and Equity Using a Panel of Canadian Firms," Staff Working Papers 07-44, Bank of Canada.
    8. Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A model of borrower reputation as intangible collateral
      by Christian Zimmermann in NEP-DGE blog on 2013-01-15 08:39:13

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    Cited by:

    1. Aoki, Kosuke & Nikolov, Kalin, 2015. "Bubbles, banks and financial stability," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 33-51.
    2. Marcos R. Castro, 2019. "Sectoral Countercyclical Buffers in a DSGE Model with a Banking Sector," Working Papers Series 503, Central Bank of Brazil, Research Department.
    3. Kuncl, Martin, 2019. "Securitization under asymmetric information over the business cycle," European Economic Review, Elsevier, vol. 111(C), pages 237-256.

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    More about this item

    Keywords

    aggregate fluctuations; collateral constraints;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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