Credit crunches as markov equilibria

We explain the large observed volatility of commercial and industrial loans as a Markov equilibrium of an economy with limited commitment in which all credit is unsecured and self-enforcing. Aggregate income growth shocks affect gains from future asset market trading, inducing fluctuations in credit limits. The economy alternates between a high state of well diversified idiosyncratic risks and a “credit crunch” state of low debt limits and poor diversification.

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Year of publication:	2013
Authors:	Azariadis, Costas ; Choi, Kyoung Jin
Published in:	Journal of Macroeconomics. - Elsevier, ISSN 0164-0704. - Vol. 38.2013, PA, p. 2-11
Publisher:	Elsevier
Subject:	Credit crunch \| Unsecured lending \| Financial panics

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Type of publication:	Article
Classification:	G01 - Financial Crises ; E4 - Money and Interest Rates ; E32 - Business Fluctuations; Cycles
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011065310