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Credit Supply and Output Volatility

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  • Cristiano Cantore
  • Mathan Satchi

Abstract

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.

Suggested Citation

  • Cristiano Cantore & Mathan Satchi, 2009. "Credit Supply and Output Volatility," Studies in Economics 0904, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:0904
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    References listed on IDEAS

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    More about this item

    Keywords

    Business Cycles; Credit Market Imperfections; Loan Supply;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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