Gomes, Orlando (2007): On the allocation of credit and aggregate fluctuations.
Download (142kB) | Preview
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.
|Item Type:||MPRA Paper|
|Institution:||Escola Superior de Comunicação Social - Instituto Politécnico de Lisboa|
|Original Title:||On the allocation of credit and aggregate fluctuations|
|Keywords:||Financial development; Credit to consumption; Endogenous growth; Endogenous cycles; Nonlinear dynamics|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
|Depositing User:||Orlando Gomes|
|Date Deposited:||24. Apr 2007|
|Last Modified:||07. May 2015 23:03|
Aghion, P.; P. Bacchetta and A. Banerjee (2004). “Financial Development and the Instability of Open Economies.” Journal of Monetary Economics, vol. 51, pp. 1077-1106. Aghion, P.; A. Banerjee and T. Piketty (1999). “Dualism and Macroeconomic Volatility.” Quarterly Journal of Economics, vol. 114, pp. 1357-1397. Amable, B.; J. B. Chatelain and K. Ralf (2004). “Credit Rationing, Profit Accumulation and Economic Growth.” Economics Letters, vol. 85, pp. 301-307. Bernanke, B. and M. Gertler (1989). “Agency Costs, Net Worth, and Business Fluctuations.” American Economic Review, vol. 79, pp. 14-31. Caballé, J.; X. Jarque and E. Michetti (2006). “Chaotic Dynamics in Credit Constrained Emerging Economies.” Journal of Economic Dynamics and Control, vol. 30, pp. 1261-1275. Christiano, L. and S. Harrison (1999). “Chaos, Sunspots and Automatic Stabilizers.” Journal of Monetary Economics, vol. 44, pp. 3-31. Guo, J. T. and K. J. Lansing (2002). “Fiscal Policy, Increasing Returns and Endogenous Fluctuations.” Macroeconomic Dynamics, vol. 6, pp. 633-664. Kyotaki, N. and J. Moore (1997). “Credit Cycles.” Journal of Political Economy, vol. 105, pp. 211-248. Levine, R. (1997). “Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature, vol. 35, pp. 688-726. Medio, A. and M. Lines (2001). Nonlinear Dynamics: a Primer. Cambridge, UK: Cambridge University Press. Stiglitz, J. E. and B. Greenwald (2003). Towards a New Paradigm in Monetary Economics. The Raffaele Mattioli Lecture Series, Cambridge: Cambridge University Press. Stiglitz, J. E. and A. Weiss (1981). “Credit Rationing in Markets with Imperfect Information.” American Economic Review, vol. 71, pp. 333-421. Stiglitz, J. E. and A. Weiss (1983). “Incentive Effects of Termination: Applications to the Credit and Labor Markets.” American Economic Review, vol. 73, pp. 912-927.