Kinks and Gains from Credit Cycles

27 Pages Posted: 29 Jul 2019

See all articles by Henrik Jensen

Henrik Jensen

University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Søren Hove Ravn

University of Copenhagen

Emiliano Santoro

University of Copenhagen - Department of Economics

Date Written: June 2019

Abstract

Credit-market imperfections are at the centre stage of several theories of business fluctuations. Since a lot of research seeks to address the welfare consequences of stabilization policies, we revisit the fundamental question of quantifying the cost of business cycles in a model where household borrowing is subject to a collateral constraint. Business cycles occasionally change the credit-market conditions, making households temporarily unconstrained and better off. This effect can dominate the conventional losses from uncertainty, thus making fluctuations welfare-dominate certainty.

Keywords: Collateral constraints, Cost of business cycles, precautionary saving

JEL Classification: E20, E32, E66

Suggested Citation

Jensen, Henrik and Ravn, Søren Hove and Santoro, Emiliano, Kinks and Gains from Credit Cycles (June 2019). CEPR Discussion Paper No. DP13795, Available at SSRN: https://ssrn.com/abstract=3428315

Henrik Jensen (Contact Author)

University of Copenhagen - Department of Economics ( email )

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HOME PAGE: http://hjeconomics.dk

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Søren Hove Ravn

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Emiliano Santoro

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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