Aggregate Implications of a Credit Crunch: The Importance of Heterogeneity | Zendy

Francisco Buera | Zendy; Benjamin Moll | Zendy

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Aggregate Implications of a Credit Crunch: The Importance of Heterogeneity

Author(s) -

Francisco Buera,

Benjamin Moll

Publication year - 2015

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.20130212

Subject(s) - business cycle , aggregate (composite) , collateral , credit crunch , economics , crunch , shock (circulatory) , investment (military) , econometrics , boom , monetary economics , finance , keynesian economics , engineering , biology , physiology , medicine , materials science , environmental engineering , politics , political science , law , composite material

We take an off-the-shelf model with financial frictions and heterogeneity, and study the mapping from a credit crunch, modeled as a shock to collateral constraints, to simple aggregate wedges. We study three variants of this model that only differ in the form of underlying heterogeneity. We find that in all three model variants a credit crunch shows up as a different wedge: efficiency, investment, and labor wedges. Furthermore, all three model variants have an undistorted Euler equation for the aggregate of firm owners. These results highlight the limitations of using representative agent models to identify sources of business cycle fluctuations. (JEL E22, E23, E32, E43, E44)

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