Credit Rationing, Output Gap, and Business Cycles

44 Pages Posted: 31 Mar 2003

See all articles by Frédéric Boissay

Frédéric Boissay

Bank for International Settlements (BIS)

Date Written: November 2001

Abstract

The cost-of-financing channel version of the financial accelerator proposed by Bernanke & Gertler [1989] is prominent in the literature. Yet, this particular channel has not been validated by empirical work. This paper presents an alternative version of the accelerator. This new accelerator, based on quantity credit rationing, is shown to be more powerful than the traditional accelerator. By causing factor under-utilization credit rationing generates an output gap persistent and sensitive to technology shocks. This accelerator is not a substitute to the traditional mechanism though, but rather a complement. My model helps improve the understanding of financial transmission mechanisms. It considers several types of collaterals. Financial frictions generate persistence when collaterals take the form of tangible assets. They generate amplification when collaterals take the form of cash flows or when asset prices are variable.

Keywords: business fluctuations; credit rationing; financial accelerator

JEL Classification: E32, E44

Suggested Citation

Boissay, Frédéric, Credit Rationing, Output Gap, and Business Cycles (November 2001). ECB Working Paper No. 87. Available at SSRN: https://ssrn.com/abstract=356265

Frédéric Boissay (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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