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Human Capital in a Credit Cycle Model

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  • Kubin, Ingrid

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  • Zörner, Thomas

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Abstract

We augment a model of endogenous credit cycles by Matsuyama et al.(2016) with human capital to study the impact of human capital on the stability of central economic aggregates. Thus we offer a linkage between human capital formation and credit market instability on a macrolevel combined with an analysis of functional income distribution. Human capital is modelled as pure external effect of production following a learning-by-producing approach. Agents have access to two different investment projects, which differ substantially in their next generations spillover effects. Some generate pecuniary externalities and technological spillovers through human capital formation whereas others fail to do so and are subject to financial frictions. Due to this endogenous credit cycles occur and a pattern of boom and bust cycles can be observed. We explore the impact of human capital on the stability of the system by numerical simulations which indicate that human capital has an ambiguous effect on the evolution of the output. Depending on the strength of the financial friction and the output share of human capital it either amplifies or mitigates output fluctuations. This analysis shows that human capital is an essential factor for economic stability and sustainable growth as a high human capital share tends to make the system's stability robust against shocks.

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  • Kubin, Ingrid & Zörner, Thomas, 2017. "Human Capital in a Credit Cycle Model," Department of Economics Working Paper Series 5681, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:5681
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    References listed on IDEAS

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    1. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," Working Paper series 15_13, Rimini Centre for Economic Analysis.
    2. 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.
    3. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, vol. 112(478), pages 187-200, March.
    4. David Andolfatto & Martin Gervais, 2006. "Human Capital Investment and Debt Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 52-67, January.
    5. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    6. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    7. Matsuyama, Kiminori & Sushko, Iryna & Gardini, Laura, 2016. "Revisiting the model of credit cycles with Good and Bad projects," Journal of Economic Theory, Elsevier, vol. 163(C), pages 525-556.
    8. Kiminori Matsuyama, 2008. "Aggregate Implications of Credit Market Imperfections," NBER Chapters,in: NBER Macroeconomics Annual 2007, Volume 22, pages 1-60 National Bureau of Economic Research, Inc.
    9. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2018. "Education policy and intergenerational transfers in equilibrium," IFS Working Papers W18/16, Institute for Fiscal Studies.
    10. Iryna Sushko & Laura Gardini & Kiminori Matsuyama, 2014. "Chaos in a Model of Credit Cycles with Good and Bad Projects," Working Papers 1405, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2014.
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    Keywords

    Human capital; Learning-by-producing; Credit cycles; Financial instability;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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