A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
- Topic classification is ongoing.
- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
Your search
Publication year
Overborrowing and Systemic Externalities in the Business Cycle
Resource type
Author/contributor
- Bianchi, Javier (Author)
Title
Overborrowing and Systemic Externalities in the Business Cycle
Abstract
Credit constraints linking debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to overborrow. This externality arises because private agents fail to internalize the financial amplification effects of carrying a large amount of debt when credit constraints bind. We conduct a quantitative analysis of this externality in a two-sector dynamic stochastic general equilibrium (DSGE) model of a small open economy calibrated to emerging markets. Raising the cost of borrowing during tranquil times restores constrained efficiency and significantly reduces the incidence and severity of financial crises. (JEL: E13, E32, E44, F41, G01)
Publication
American Economic Review
Volume
101
Issue
7
Pages
3400-3426
Date
2011-12
Citation
Bianchi, J. (2011). Overborrowing and Systemic Externalities in the Business Cycle. American Economic Review, 101, 3400–3426.
Journals
Link to this record