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CHAINED CREDIT CONTRACTS AND FINANCIAL ACCELERATORS
Author(s) -
Hirakata Naohisa,
Sudo Nao,
Ueda Kozo
Publication year - 2017
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12376
Subject(s) - net worth , financial intermediary , economics , debt , intermediary , monetary economics , net income , financial accelerator , finance , business , financial system , monetary policy , dynamic stochastic general equilibrium
Sufficiently high net worth of financial intermediaries ( FIs ) is considered a necessary condition for financial and macroeconomic stability. In this paper, we explore why the net worth of FIs is important as compared to that of nonfinancial firms using a dynamic general equilibrium model, in which both FIs and nonfinancial firms rely on costly external debt. We find that an exogenous disruption of the FIs ' net worth has a greater aggregate impact than does the same‐sized disruption of the nonfinancial firms' net worth. The key reason is that the net worth of the FIs in the United States is small. ( JEL E22, E44, G21)