Motivated by the apparent failure of the credit multiplier mechanism (CM) to deliver amplification in DSGE models, we re-examine its role in business cycles to address the question: is something wrong with the CM? Our answer is no. In coming to this answer we construct a model with reproducible...

This paper examines macroeconomic dynamics of household debt and housing prices. Drawing on Minsky's insights into financial instability and cycles, our framework combines household debt dynamics with behavioral asset price dynamics in a Keynesian macro model. We show that endogenous boom-bust...

This paper develops a simple model with collateralized borrowing constraints to explore the business cycle implications of financial leverage. The degree of leverage is shown to be an important factor in the amplifying role of collateral constraints, suggesting that the financial vulnerability...

Credit constraints that link a private agent's debt to market-determined prices create a systemic credit externality that drives a wedge between competitive and (constrained) socially optimal equilibria, which induces private agents to "overborrow". We quantify the effects of this externality in...

Much of the macroeconomics literature dealing with wealth distribution has abstracted from modeling housing explicitly. This paper investigates the properties of the wealth distribution and the portfolio composition regarding housing and equity holdings and their relationship to macroeconomic...

Wealth is distributed more unevenly than income, and one contributing factor might be that richer households earn higher portfolio returns. I uncover one channel that causes portfolio returns to be increasing in wealth: Poorer households consistently buy risky assets in booms—when expected...

This chapter develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the...

This paper demonstrates that credit reporting -- banks observing households' default histories -- can cause slow recoveries of housing prices and employment from mortgage crises. Comparing credit cycles with and without credit reporting and capturing the impact of mortgage default on employment...