Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/53858 
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Working Paper No. 2008-23
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Following the seminal contribution of Kiyotaki and Moore (1997), the role of collateral constraints for business cycle fluctuations has been highlighted by several authors and collateralized debt is becoming a popular feature of business cycle models. In contrast, Kocherlakota (2000) and Cordoba and Ripoll (2004) demonstrate that collateral constraints per se are unable to propagate and amplify exogenous shocks, unless unorthodox assumptions on preferences and production technologies are made. The aim of this paper is to examine the contribution of costly debt enforcement procedures in the amplification of business cycle fluctuations through collateral constraints. We show that for realistic degrees of inefficiency, collateral constraints can significantly amplify the effects of productivity shocks on output even under standard assumptions on preferences and technology.
Subjects: 
Business fluctuations and cycles
Credit and credit aggregates
JEL: 
E20
E3
E32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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