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Collaterals and macroeconomic volatility

Author

Listed:
  • Riham Barbar

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Stefano Bosi

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

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. It is assumed that the share of consumption purchases paid on credit depends positively on the collaterals available to the agent. In this case, money is no longer superneutral. We find that, under mild inflation rates, a higher money growth rate is welfare-improving and, surprisingly, it makes the occurrence of expectations-driven fluctuations less likely. The shape of credit share in consumption purchases, as outcome of regulatory policies, has an impact on both welfare and stability. In particular, the higher the sensitivity of the credit share to collaterals, the more stable the economy under rational expectations. These analytical findings are complemented by economic interpretations. © 2010 University of Venice.

Suggested Citation

  • Riham Barbar & Stefano Bosi, 2010. "Collaterals and macroeconomic volatility," Post-Print hal-02877979, HAL.
    • Handle: RePEc:hal:journl:hal-02877979
    DOI: 10.1016/j.rie.2010.03.002
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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.

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    Keywords

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    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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