Arbeitspapier
Leverage constraints and real interest rates
This paper investigates the macroconomics of real interest rates when there are constraints on debt finance, used both for insurance against income shocks and transferability of resources over time. We amend a standard continuous-time deterministic model of international exchange, with patient and impatient countries, introducing country level shocks fully diversifiable at the global level. A series of shocks that push one country towards its leverage limit induces substantial pre-cautionary saving and a collapse of real interest rate relative to the deterministic benchmark. We discuss the resulting dynamics of interest rates and the broader implications for macroeconomic modelling.
- ISBN
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978-952-323-006-4
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 27/2014
- Classification
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Wirtschaft
Financial Markets and the Macroeconomy
- Subject
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borrowing constraints
debt management
incomplete financial markets
international macroeconomics
finance and macroeconomics
macroeconomic propagation
precautionary saving
systemic risk
- Event
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Geistige Schöpfung
- (who)
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Isohätälä, Jukka
Kusmartsev, Feo
Milne, Alistair
Robertson, Donald
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
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2014
- Handle
- Last update
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10.03.2025, 11:45 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Isohätälä, Jukka
- Kusmartsev, Feo
- Milne, Alistair
- Robertson, Donald
- Bank of Finland
Time of origin
- 2014
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