On the allocation of credit and aggregate fluctuations

Gomes, Orlando (2007): On the allocation of credit and aggregate fluctuations.

Abstract

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
• Language: English
• 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

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