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Collaterals and Macroeconomic Volatility

Author

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  • Riham Barbar

    (EPEE, University of Evry)

  • Stefano Bosi

    (EQUIPPE, University of Lille 1)

Abstract

In this paper, we study the effects of collaterals on business cycles and growth in monetary economies with credit market imperfections. We consider an endogenous growth model with a partial cash-in-advance constraint and inelastic labor supply. We assume that the share of consumption purchases paid with credit depends positively on the collateral available to the agent. In this framework, we find that money is no longer superneutral in the long run and short-run fluctuations, either deterministic or stochastic, can arise. On the one side, the monetary policy can enhance the growth rate and welfare, on the other side, reduce the macroeconomic volatility. Second, the sensitivity to collaterals alters the effectiveness of monetary policy in terms of welfare and stability. Finally, indeterminacy becomes more likely as long as the credit market is less sensitive to collaterals.

Suggested Citation

  • Riham Barbar & Stefano Bosi, 2008. "Collaterals and Macroeconomic Volatility," Documents de recherche 08-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  • Handle: RePEc:eve:wpaper:08-15
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    References listed on IDEAS

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    Cited by:

    1. Bosi, Stefano & Ismael, Mohanad & Venditti, Alain, 2016. "Collateral and growth cycles with heterogeneous agents," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 327-350.

    More about this item

    Keywords

    liquidity constraint; superneutrality; endogenous fluctuations;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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