COLLATERAL CONSTRAINT AND NEWS-DRIVEN CYCLES

Keiichiro Kobayashi, Tomoyuki Nakajima, Masaru Inaba
2012 Macroeconomic Dynamics  
Kobayashi, Nakajima, and Inaba (2007) show that in the neoclassical business cycle models with collateral constraints, a boom can be generated in response to an optimistic change in expectations on the future state of the economy. They call this business cycle a news-driven cycle. In their models, land is used as collateral, and borrowing for working capital is limited by the value of collateralized land. We simplify their model to the one without land. We show that in the economy where capital
more » ... onomy where capital goods are used as collateral, the news-driven cycles can be generated.
doi:10.1017/s1365100510000829 fatcat:d64npi5ae5hghiouocudejbrcy