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CREDIT CYCLES REDUX*
Author(s) -
Cordoba JuanCarlos,
Ripoll Marla
Publication year - 2004
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.0020-6598.2004.00296.x
Subject(s) - collateral , redux , economics , production (economics) , collateral damage , econometrics , monetary economics , microeconomics , finance , engineering , sociology , criminology , aerospace engineering
Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a “knife‐edge” type of result.