Credit Traps and Credit Cycles
Open Access
- 1 February 2007
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 97 (1) , 503-516
- https://doi.org/10.1257/aer.97.1.503
Abstract
We develop a simple macroeconomic model of credit market imperfections with heterogeneous investment projects. The projects differ in productivity, the investment requirement, and the severity of agency problems behind the borrowing constraints. A movement in borrower net worth shifts the composition of the credit between projects with different productivity levels, thereby causing endogenous investment-specific technological change. Furthermore, such endogenous technological change in turn affects borrower net worth. These composition effects could give rise to credit traps, credit collapse, leapfrogging, credit cycles, and growth miracles in the dynamics of the aggregate investment and borrower net worth. (JEL E22, E44, O33)Keywords
This publication has 10 references indexed in Scilit:
- THE 2005 LAWRENCE R. KLEIN LECTURE: EMERGENT CLASS STRUCTURE*International Economic Review, 2006
- Credit Market Imperfections and Patterns of International Trade and Capital FlowsJournal of the European Economic Association, 2005
- Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of NationsEconometrica, 2004
- Endogenous InequalityThe Review of Economic Studies, 2000
- The role of investment-specific technological change in the business cycleEuropean Economic Review, 2000
- Credit CyclesJournal of Political Economy, 1997
- Inside the Black Box: The Credit Channel of Monetary Policy TransmissionJournal of Economic Perspectives, 1995
- A Theory of Debt Based on the Inalienability of Human CapitalThe Quarterly Journal of Economics, 1994
- Industrialization and the Big PushJournal of Political Economy, 1989
- Multiple Expectational Equilibria under Monopolistic CompetitionThe Quarterly Journal of Economics, 1988