Collateral amplification under complete markets

This paper examines the robustness of the Kiyotaki–Moore collateral amplification mechanism to the existence of complete markets for aggregate risk. We show that, when borrowers can hedge against aggregate shocks at fair prices, the volatility of endogenous variables becomes identical to the first best in the absence of credit constraints. The collateral amplification mechanism disappears.

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Year of publication:	2014
Authors:	Nikolov, Kalin
Published in:	Journal of Economic Dynamics and Control. - Elsevier, ISSN 0165-1889. - Vol. 45.2014, C, p. 80-93
Publisher:	Elsevier
Subject:	Collateral constraints \| Amplification

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Type of publication:	Article
Classification:	E32 - Business Fluctuations; Cycles ; D52 - Incomplete Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010906778