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On the allocation of credit and aggregate fluctuations

  • Gomes, Orlando

Recent literature on financial development and growth has highlighted the possibility of endogenous business cycles arising for particular levels of a given credit multiplier. These studies concentrate on loans directed to the productive activity and neglect the role of credit to consumption. In this note, we consider an endogenous growth model, where a representative agent must choose how to allocate credit; basically, the agent considers a simple rule where the share of credit to consumption reacts to deviations of the consumption – wealth ratio relatively to the corresponding steady state level. The setup generates nonlinear dynamics, which are analyzed both locally and globally.

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File URL: https://mpra.ub.uni-muenchen.de/2889/1/MPRA_paper_2889.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2889.

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Date of creation: Mar 2007
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Handle: RePEc:pra:mprapa:2889
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  1. Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco.
  2. Bacchetta, Philippe & Aghion, Philippe & Banerjee, Abhijit, 2004. "Financial Development and the Instability of Open Economies," Scholarly Articles 4554209, Harvard University Department of Economics.
  3. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc.
  4. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1999. "Dualism and Macroeconomic Volatility," Scholarly Articles 4554124, Harvard University Department of Economics.
  5. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  6. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  7. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  9. Jordi Caballé & Xavier Jarque & Elisabetta Michetti, 2004. "Chaotic Dynamics in Credit Constrained Emerging Economies," Working Papers 121, Barcelona Graduate School of Economics.
  10. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-27, December.
  11. Jean-Bernard Chatelain & Bruno Amable & Kirsten Ralf, 2004. "Credit rationing, profit accumulation and economic growth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00112521, HAL.
  12. Medio,Alfredo & Lines,Marji, 2001. "Nonlinear Dynamics," Cambridge Books, Cambridge University Press, number 9780521551861.
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