Amplification and Asymmetric Effects without Collateral Constraints†

Amplification and Asymmetric Effects without Collateral Constraints† AbstractThe seminal contribution by Kiyotaki and Moore (1997) has spurred a vast literature on the importance of collateral constraints in propagating and amplifying shocks to the economy. However, most papers in the literature using collateral constraints assume non-state-contingent debt, i.e., markets are incomplete. To assess the relative importance of collateral constraints versus market incompleteness, we study a calibrated incomplete markets model and solve it with and without collateral constraints. We find that market incompleteness by itself plays a quantitatively significant role in the amplified and asymmetric responses of the economy, including land price and output, to exogenous shocks. (JEL D52, E32, E44, L26, O41) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Amplification and Asymmetric Effects without Collateral Constraints†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7715
D.O.I.
10.1257/mac.20150219
Publisher site
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Abstract

AbstractThe seminal contribution by Kiyotaki and Moore (1997) has spurred a vast literature on the importance of collateral constraints in propagating and amplifying shocks to the economy. However, most papers in the literature using collateral constraints assume non-state-contingent debt, i.e., markets are incomplete. To assess the relative importance of collateral constraints versus market incompleteness, we study a calibrated incomplete markets model and solve it with and without collateral constraints. We find that market incompleteness by itself plays a quantitatively significant role in the amplified and asymmetric responses of the economy, including land price and output, to exogenous shocks. (JEL D52, E32, E44, L26, O41)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2017

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