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Quantitative Significance of Collateral Constraints as an Amplification Mechanism

  • INABA Masaru
  • KOBAYASHI Keiichiro

Do large fluctuations arise from small shocks through financial frictions? In previous literature it is shown that a collateral constraint on intertemporal debt for consumption smoothing does not have a quantitatively significant effect on the response of output to unexpected shocks. We additionally focus on the collateral constraint on intratemporal debt for wage payments and examine the amplification of output. We find that output is significantly amplified in a standard functional form and parameter region. We also find that the region of the parameters for which the output is amplified is wider than that of previous literature.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09035.

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Length: 20 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:eti:dpaper:09035
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  1. Kobayashi, Keiichiro & Nakajima, Tomoyuki & Inaba, Masaru, 2012. "Collateral Constraint And News-Driven Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 16(05), pages 752-776, November.
  2. V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc.
  3. 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.
  4. Zheng Song & Kaiji Chen, 2007. "Capital Reallocation, Productivity, and Expectation-Driven Business Cycles," 2007 Meeting Papers 512, Society for Economic Dynamics.
  5. 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.
  6. Jermann, Urban & Quadrini, Vincenzo, 2006. "Financial Innovations and Macroeconomic Volatility," CEPR Discussion Papers 5727, C.E.P.R. Discussion Papers.
  7. repec:ebl:ecbull:v:5:y:2007:i:18:p:1-9 is not listed on IDEAS
  8. Keiichiro Kobayashi & Kengo Nutahara, 2007. "Collateralized capital and news-driven cycles," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-9.
  9. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
  10. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
  11. 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.
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