Kiyotaki & Moore () – Credit Cycles. The Idea. Motivation. ▻ There is a range of emprical micro evidence that the balance sheet of firms is important to their. Kiyotaki and Moore . Econ , Spring .. Kiyotaki and Moore , which we will come to later. • The fact that Credit cycles. Journal of Political. 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 dyna.
|Published (Last):||27 February 2004|
|PDF File Size:||2.23 Mb|
|ePub File Size:||10.89 Mb|
|Price:||Free* [*Free Regsitration Required]|
In other words, loans must be backed by collateral.
Retrieved from ” https: Two key assumptions limit the effectiveness of the credit market in the model. If for any reason the value of real estate declines, so does the amount of debt they can acquire.
From Wikipedia, the free encyclopedia. Kiyotaki and Moore’s paper considers land as an example of a collateralizable asset. Therefore, in equilibrium, lending occurs only if it is collateralized. This collateral requirement amplifies business cycle fluctuations because in a recessionthe income from capital falls, causing the price of capital to fall, which kiyoaki capital less valuable as collateral, which limits firms’ investment by forcing them to reduce their borrowing, and thereby worsens the recession.
The paper also analyzes cases where debt contracts are set only in nominal terms or where contracts can be set in real terms, and considers the differences between the cases. This positive feedback is what amplifies economic fluctuations in the model.
Second, farmers cannot be forced to work, and therefore they cannot sell off their future labor to guarantee their debts.
Kiyotaki–Moore model – Wikipedia
In their model economy, Kiyotaki and Moore assume two types of decision makerswith different time preference rates: Therefore, loans will only be made if they are backed by some other form of capital which can be confiscated in case of default. Journal of Political Economy. Thus land plays two distinct roles in the model: Views Read Edit View history. This page was last edited on 23 Mayat Kiyotaki a macroeconomist and Moore a contract theorist originally described their model in a paper in the Journal of Political Economy.
That is, borrowers must own a sufficient quantity of capital that can be confiscated in case they fail to repay.
Structure of the model [ edit ] In their model economy, Kiyotaki and Moore assume two types of decision makerswith different time preference rates: Kiyotako, impatient agents must provide real estate as collateral if they wish to borrow. New Keynesian economics Economics models Business cycle theories.
InKiyotaki’s student Matteo Iacoviello embedded the Kiyotaki-Moore mechanism inside a standard New Keynesian general equilibrium macroeconomic model. Together, these assumptions imply that even though farmers’ investment projects are potentially very valuable, lenders have no way to confiscate this value if farmers kiyotakj not to pay back their debts. This feeds back into the real estate market, driving the price of land down further thus, the borrowing decisions of the impatient agents are strategic complements.
The Kiyotaki—Moore model shows instead how relatively small shocks might suffice to explain business kiyotki fluctuations, if credit markets are imperfect.
The cylces assumes that borrowers cannot be forced to repay their debts. The original paper of Kiyotaki and Moore was theoretical in nature, and made little attempt to evaluate the quantitative relevance of their mechanism for actual economies. Extensions [ edit ] The original paper of Kiyotaki and Moore was theoretical in nature, and made little attempt to evaluate the quantitative relevance of their mechanism for actual economies.
First, the knowledge of cycoes “farmers” is an essential input to their own investment projects—that is, a project becomes worthless if the farmer who made the investment chooses to abandon it.