Amplification and Asymmetric Effects without Collateral Constraints
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Abstract
The 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.Citation
Cao, Dan, and Guangyu Nie. 2017. "Amplification and Asymmetric Effects without Collateral Constraints." American Economic Journal: Macroeconomics, 9 (3): 222-66. DOI: 10.1257/mac.20150219Additional Materials
JEL Classification
- D52 Incomplete Markets
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- L26 Entrepreneurship
- O41 One, Two, and Multisector Growth Models
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