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Credit Supply and Output Volatility

Listed author(s):
  • Cristiano Cantore

    ()

  • Mathan Satchi

    ()

The link between aggregate profits and investment has been widely analysed through the impact of profits on net worth and therefore the firm’s ability to borrow, in the presence of credit market imperfections. How the business cycle is affected if profits also affect investment through an impact on savings and therefore the intermediary’s ability to lend, is the topic of this paper. We find that the fluctuations in the supply of credit that result from this may significantly amplify output responses to shocks in comparison to a situation where the net worth mechanism operates alone.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0904.pdf
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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0904.

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Date of creation: Mar 2009
Handle: RePEc:ukc:ukcedp:0904
Contact details of provider: Postal:
School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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