Credit Cycles

  title={Credit Cycles},
  author={Nobuhiro Kiyotaki and John. Moore},
  journal={Journal of Political Economy},
  pages={211 - 248}
We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production, but they also serve as collateral for loans. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. We show that small, temporary… 
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