We explore the intertwined dynamics of asset prices and the macroeconomy in a Behavioural model of Credit Cycles (BCC) characterized by a credit friction à la Kiyotaki and Moore and heterogeneous expectations cum heuristic switching à la Brock and Hommes. This behavioural approach allows to...

The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first,...

On the one hand, recently a number of theoretical models have highlighted the role of credit market frictions in propagating and amplifying macroeconomic shocks. On the other hand, it still seems an open question whether this role is quantitatively significant. Our paper tries to fill this gap....

This paper studies the role of credit-supply factors in business cycle fluctuations. For this purpose, we introduce an imperfectly competitive banking sector into a DSGE model with financial frictions. Banks issue collateralized loans to both households and firms, obtain funding via deposits and...

We analyze optimal monetary policy in a model with two distinct financial frictions. First, borrowing is subject to collateral constraints. Second, credit flows are intermediated by monopolistically competitive banks, thus giving rise to endogenous lending spreads. We show that, up to a second...

This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and is...

The real business cycle (RBC) model pioneered by Kydland and Prescott (1982) was a fundamental step to understand business cycles. This literature, in general, claims that aggregate technology shocks are the main ingredient to explain these fluctuations. However, in order to match various...

Using U.S. data and Bayesian methods, we quantify the contribution of the housing market to business fluctuations. The estimated model, which contains nominal and real rigidities and collateral constraints, is used to address two questions. First, what shocks drive the housing market? We find...

This paper studies how investment and production in an economy is allocated across sectors when they face asymmetric financial conditions. Namely, when investors in one sector may run projects with higher loan-to-values than in another sector. Investors decide where to invest based on total...

The ongoing financial turmoil has triggered a lively debate on ways of containing systemic risk and lessening the likelihood of future boom-and-bust episodes in credit markets. Particularly, it has been argued that banking regulation might attenuate procyclicality in lending standards by...