Credit Cycles

JOURNAL OF POLITICAL ECONOMY, Vol. 105, No. 2, April 1997

Posted: 28 Apr 1997  

John Moore

University of Edinburgh - Economics; London School of Economics

Nobuhiro Kiyotaki

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER)

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Abstract

We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production, but they also serve as collateral for loans. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. We show that small, temporary shocks to technology or income distribution can generate large, persistent fluctuations in output and asset prices.

JEL Classification: E32, E37, E44

Suggested Citation

Moore, John and Kiyotaki, Nobuhiro, Credit Cycles. JOURNAL OF POLITICAL ECONOMY, Vol. 105, No. 2, April 1997. Available at SSRN: https://ssrn.com/abstract=3914

John Hardman Moore (Contact Author)

University of Edinburgh - Economics ( email )

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Edinburgh, EH8 9JY, Scotland
United Kingdom

London School of Economics ( email )

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London WC2A 2AE
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44-171-955-7550 (Phone)
44-171-831-1840 (Fax)

Nobuhiro Kiyotaki

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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