Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70610
Authors: 
Liu, Zheng
Wang, Pengfei
Zha, Tao
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2010-1
Abstract: 
Previous studies on financial frictions have been unable to establish the empirical significance of credit constraints in macroeconomic fluctuations. This paper argues that the muted impact of credit constraints stems from the absence of a mechanism to explain the observed persistent comovements between housing prices and business investment. We develop such a mechanism by incorporating two key features into a dynamic stochastic general equilibrium model: We identify shocks that shift the demand for collateral assets and allow productive agents to be credit-constrained. A combination of these two features enables our model to successfully generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through credit constraints.
Subjects: 
credit constraints
collateral asset
housing prices
investment
financial multiplier
business cycle
structural estimation
JEL: 
E21
E27
E32
Document Type: 
Working Paper

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