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Credit Constraints and Aggregate Economic Activity Over the Business Cycles

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  • Giorgadze, Tamar
  • Vasilev, Aleksandar

Abstract

The paper examines that imperfections in financial markets are themselves a source of macroeconomic fluctuations. Small, temporary shocks to technology or income distribution can generate large fluctuations in output and asset prices and spill over to other sectors. The work is based on the original model by Kiyotaki and Moore (1997). This paper will simulate a one-unit technology shock and study the propagation through the credit channel, evaluating its quantitative impact. While in the Kiyotaki-Moore model there is a linear production function used, we will try to do the derivation using the non-linear function and analyze how it changes the previously obtained result.

Suggested Citation

  • Giorgadze, Tamar & Vasilev, Aleksandar, 2016. "Credit Constraints and Aggregate Economic Activity Over the Business Cycles," EconStor Research Reports 144572, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esrepo:144572
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    File URL: https://www.econstor.eu/bitstream/10419/144572/1/credit_BC.pdf
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    References listed on IDEAS

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    1. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    2. G. B. Gorton & Ping He, 2008. "Bank Credit Cycles," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1181-1214.
    3. Kenneth Kasa, 1998. "Borrowing constraints and asset market dynamics: evidence from the Pacific Basin," Economic Review, Federal Reserve Bank of San Francisco, pages 17-28.
    4. Hirano, Tomohiro & Inaba, Masaru, 2010. "Asset Price Bubbles in the Kiyotaki-Moore Model," MPRA Paper 36632, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Credit cycles; aggregate fluctuations;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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