Arbeitspapier
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. To motivate the limited use of contingent contracts, we introduce costs of issuing contingent debt and calibrate them to match the liquidity and safety premia the data. We .find that realistic costs of state contingent market participation can rationalize the predominant use of uncontingent debt. Amplification is restored in such an environment.
- ISBN
-
978-92-899-1124-5
- Sprache
-
Englisch
- Erschienen in
-
Series: ECB Working Paper ; No. 1716
- Klassifikation
-
Wirtschaft
Business Fluctuations; Cycles
Incomplete Markets
- Thema
-
amplification
collateral constraints
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Nikolov, Kalin
- Ereignis
-
Veröffentlichung
- (wer)
-
European Central Bank (ECB)
- (wo)
-
Frankfurt a. M.
- (wann)
-
2014
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Nikolov, Kalin
- European Central Bank (ECB)
Entstanden
- 2014
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