TY  - JOUR
AU  - Kiyotaki,Nobuhiro
AU  - Moore,John
TI  - Credit Cycles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5083
PY  - 1995
Y2  - April 1995
UR  - http://www.nber.org/papers/w5083
L1  - http://www.nber.org/papers/w5083.pdf
N1  - Author contact info:
Nobuhiro Kiyotaki
Department of Economics
Princeton University
Fisher Hall
Princeton, NJ 08544-1021
Tel: 609-258-4000
Fax: 609-258-6419
E-Mail: kiyotaki@princeton.edu

John Moore
William Robertson Building
Edinburgh
Scotland, EH8 9JY
U.K.
E-Mail: j.h.moore@ed.ac.uk
AB  - This paper is a theoretical study into how credit constraints interact with aggregate economic activity over the business cycle.  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 such as land, buildings and machinery play a dual role: they are not only factors of production, but they also serve as collateral for loans.  Borrowers' credit limits are affected by the prices of the collateralized assets.  And at the same time, these prices are affected by the size of the credit limits.  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.
ER  -