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Endogenous credit and investment cycles with asset price volatility

Carli, Francesco and Modesto, Leonor 2018, Endogenous credit and investment cycles with asset price volatility, Macroeconomic dynamics, vol. 22, no. 7, Special Issue, pp. 1-33, doi: 10.1017/S1365100516000912.

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Title Endogenous credit and investment cycles with asset price volatility
Author(s) Carli, FrancescoORCID iD for Carli, Francesco orcid.org/0000-0001-9594-4706
Modesto, Leonor
Journal name Macroeconomic dynamics
Volume number 22
Issue number 7
Season Special Issue
Start page 1
End page 33
Total pages 33
Publisher Cambridge University Press
Place of publication Cambridge, Eng.
Publication date 2018-10
ISSN 1365-1005
1469-8056
Keyword(s) Credit Frictions
Limited Commitment
Indeterminacy
Sunspots
Summary It is commonly accepted that credit market frictions are an important source of macroeconomic fluctuations. But what is the link between the two? And what is the driving factor of asset prices volatility? To answer these questions, we have introduced a specific credit friction, limited commitment, in a general equilibrium model with production and investment in productive capital, where agents can trade bonds. The model always displays a stationary equilibrium where bonds are traded. More importantly, limited commitment may generate stochastic endogenous fluctuations driven by self-fulfilling volatile expectations (sunspots), yielding credit and investment cycles and bond price volatility consistent with data.
Language eng
DOI 10.1017/S1365100516000912
Field of Research 1401 Economic Theory
Copyright notice ©2017, Cambridge University Press
Free to Read? Yes
Persistent URL http://hdl.handle.net/10536/DRO/DU:30097313

Document type: Journal Article
Collections: Faculty of Business and Law
Open Access Collection
Department of Economics
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