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Chained Credit Contracts and Financial Accelerators

  • Naohisa Hirakata

    (Deputy Director, Research and Statistics Department, Bank of Japan. (E-mail:

  • Nao Sudo

    (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan. (E-mail:

  • Kozo Ueda

    (Director, Institute for Monetary and Economic Studies, Bank of Japan. (E-mail:

Based on the financial accelerator model of Bernanke et al. (1999), we develop a dynamic general equilibrium model for a chain of credit contracts in which financial intermediaries (hereafter FIs) as well as entrepreneurs are subject to credit constraints. Financial intermediation takes place through chained-credit contracts, lending from the market to FIs, and from FIs to entrepreneurs. Calibrated to U.S. data, our model shows that the chained credit contracts enhance the financial accelerator effect, depending on the net worth distribution across sectors: (1) our model reinforces the effects of the net worth shock and the technology shock, compared with a model that omits the FIs' credit friction a la Bernanke et al. (1999); (2) the sectoral shock to FIs has a greater impact than the sectoral shock to entrepreneurs; and (3) the redistribution of net worth from entrepreneurs to FIs reduces the amplification of the technology shock. The key features of the results arise from the asymmetry of the two borrowing sectors: smaller net worth and larger bankruptcy costs of FIs relative to those of entrepreneurs.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-30.

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Date of creation: Nov 2009
Date of revision:
Handle: RePEc:ime:imedps:09-e-30
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  1. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  2. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
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  17. Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October.
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