Kiyotaki, nobuhiro and moore, john hardman, credit cycles april 1995. The kiyotakimoore model of credit cycles is an economic model developed by nobuhiro. Chapter 3 uses a generalized kiyotaki and moore model 1997 with collateral and cashinadvance constraints to study the effects of financial and nonfinancial crisis and the effects of monetary policy both in the short and the long run. Kiyotaki, nobuhiro and moore, john hardman, credit cycles april. House prices, borrowing constraints, and monetary policy in the business cycle pdf. Type i agents consume good 1 and produce good 2, type ii agents consume good 2 and produce good 3, and type iii agents consume good 3 and produce good 1 agents can produce one type of good, but only derive utility by consuming a different type of good. Liquidity, business cycles, and monetary policy nobuhiro kiyotaki, john moore. Kiyotaki nobuhiro and john moore 1997 credit cycles journal. The role of asset prices is emphasized in kiyotaki and moore 1997, bernanke and gertler 1999, and chen 2001. The literature leading this field, both the seminal contributions of kiyotaki and moore 1997 and bernanke et al. Countries should move from bankfinance to capital markets. Wholesale banking and bank runs in macroeconomic modelling of. In my first chapter which is joint with nobu kiyotaki and alex michaelides, we develop a lifecycle model of a production.
Evil is the root of all money nobuhiro kiyotaki john. The dynamic interaction between credit limits and asset prices turns out to be a. I they have di erent discount rates, business cycles, and monetary policy nobuhiro kiyotaki, john moore. These different patterns of investment behavior have been viewed as indicating.
On the amplification role of collateral constraints munich. Evil is the root of all money american economic association. The unifying theme in my phd thesis is the effect that credit market imperfections have on aggregate outcomes. The kiyotakimoore 1997 framework is a prominent macro model that features credit constraints as an important factor that propagates and magnifies the effects of shocks. Lessons from the financial crisis and their implications. Of all published articles, the following were the most read within the past 12 months.
Kiyotaki and moore it produces comovement of amount of credit, asset prices and aggregate output. Following the work of bernanke and gertler 1989 and kiyotaki and moore 1997, various studies have presented dynamic models where. Kiyotaki a macroeconomist and moore a contract theorist originally described their model in a 1997 paper in the journal of political economy. Bernanke, gertler and gilchrist 1999 allow default, but make it inconsequential to diversi. Nobuhiro kiyotaki university of minnesota and federal reserve bank of minneapolis john moore london school of economics and heriotwatt university we construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. Greenwald and stiglitz 2003, kiyotaki and moore 1997, bernanke and gertler 1989, and stiglitz and weiss 1992. Their model has become influential because earlier real business cycle models typically relied on large exogenous shocks to account for fluctuations in aggregate output. Economic fluctuations and growth this paper is a theoretical study into how credit constraints interact with aggregate economic activity over the business cycle. A model of borrower reputation as intangible collateral. This paper introduces the kiyotakimoore 1997 setup into an otherwise standard dynamic general equilibrium. Keiko kiyotaki editor of frontiers of ottoman studies. Money circulates because it is more liquid than other assets, not because it has any special.
Kiyotaki and moore 1997 is the seminal paper in the latter approach, and we discuss it here. Money and search the kiyotakiwright model econ 208 lecture 14 march 20, 2007 econ 208 lecture 14 kiyotakiwright march 20, 2007 1 9. Amplification and asymmetric effects without collateral constraints by dan cao and guangyu nie. The paper presents a model of a monetary economy where there are differences in liquidity across assets. This paper shows that financial frictions in the form of collateralized borrowing at the firm level kiyotaki and moore, 1997 can give rise to convex adjustment. The basic idea of the costly enforcement approach is that borrowers face a binding borrowing constraint, where the constraint is some function of the marketvalue of their assets. Liquidity, business cycles, and monetary policy nobuhiro kiyotaki and john moorey first version, june 2001 this version, february 2012 abstract the paper presents a model of a monetary economy where there are di. Kiyotaki and moore 1997 and kiyotaki 1998 have argued that such mechanism is a particular form of creditmarket frictions. The kiyotaki and moore 1997 model is one of the leading macro models of. Economic fluctuations and growth program, monetary economics program. Pages 15 ratings 75% 4 3 out of 4 people found this document helpful. Used wisely and in moderation, it clearly improves welfare. Evil is the root of all money by nobuhiro kiyotaki and john moore. Kiyotaki and moore 1997,bernanke, gertler, and gilchrist1999.
In this paper, we build a framework which can generate endogenous fluctuations in downpayment requirements. Following the seminal contribution of kiyotaki and moore 1997, the role of collateral constraints for business cycle fluctuations has been highlighted by several authors and collateralized debt is becoming a popular feature of business cycle models. Kiyotaki and moore 1997 restrict contracts to rule out default. Monetary economics credit cycles the kiyotaki moore model. Moore that shows how small shocks to the economy might be amplified by credit restrictions, giving rise to large output fluctuations. Kyotaki moore model credit market imperfections in a general equilibrium model kiyotaki and moore it produces comovement of amount of credit, asset prices and aggregate output, it creates a propagation mechanism that produces persistence and amplication of a shock, it produces procyclical productivity even if technology does not change. F ollo wing kiyotaki and mo ore 1997, creditors limit credit so that debt repaymen t cannot exceed the v alue of col lateral, i. This approach stresses the role of balance sheets in constraining borrower spending in a setting with nancial market frictions. Quantitative implications of the credit constraint in the. Since kiyotaki and moore 1997 and kiyotaki 1998 a big strand of the literature has used collateral constraints as a transmission mechanism of shocks. See also bernanke and gertler 1989, chen 1997, kiyotaki and moore 1997b, scheinkman and weiss 1986 and shleifer and vishny 1992. These models have been used for a variety of purposes, including the analysis of the impact of monetary and fiscal policies on the real economy and financial markets. My main interest is in the collateral amplification mechanism and on the welfare effects that economic shocks and policies have on different groups in society.
Economic fluctuations and growth program, monetary economics program the paper presents a model of a monetary economy where there are differences in liquidity across assets. Kiyotaki nobuhiro and john moore 1997 credit cycles school university of sydney. Kiyotaki nobuhiro and john moore 1997 credit cycles journal of political from ecos 3021 at university of sydney. This allows lenders to punish defaulting borrowers by excluding them from future borrowing. Our purpose is to study how aggregate production and asset prices. Starting with bernanke and gertler 1989 followed by carlstrom and fuerst 1997, kiyotaki and moore 1997 and others rigorous analytical models have been developed. Total downloads of all papers by nobuhiro kiyotaki. Nobuhiro kiyotaki and john moore source university of york. We extend the model of kiyotaki and moore 1997 by considering an environment, in which savers can keep their anonymity but borrowers cannot. A theory of capital adjustment costs hayashi meets kiyotaki and moore. In 1997, with john moore, kiyotaki constructed a model to show how small shocks to the economy might be amplified into large output fluctuations through the interaction between real estate prices and restrictions on the availability of credit. While sharing the emphasis on balance sheets in a macroeconomic context, our model is more basic about borrowers credit demand, but incorporates a banking system credit. Kiyotaki nobuhiro and john moore 1997 credit cycles journal of political.
But it rose to the top because, first, my phd teaching allowed me to finally get to myersons bargaining chapter in his textbook and abreuguls bargaining with commitment model and, second, because eric maskin recommends it as one. Cecchetti, mohanty and zampolli the real effects of debt 4 1. Procyclical movement in balance sheet strength amplies spending and thus aggregate economic activity. While firstgeneration and secondgeneration models of speculative attacks both have considerablerelevance to particular financial crises of the 1990s, a thirdgeneration model is needed to make sense of thenumber and nature of the emerging market crises of. This paper shows that financial frictions in the form of collateralized borrowing at the firm level kiyotaki and moore, 1997 can give rise to convex adjustment costs at the aggregate level yet.
Investor borrowing heterogeneity in a kiyotakimoore style. The model assumes that borrowers cannot be forced to repay their debts. On the amplification role of collateral constraints. Monetary economics credit cycles the kiyotaki moore model nicola viegi university of pretoria september 2016. Its been on my pile of papers to read for many, many years. Changing financing constraints, however, has limited effects on housing prices. Among others, iacoviello 2005, documented the relevance of housing prices and collateralized debt for the transmission and amplication of shocks, iacoviello and neri 2007. Liquidity, business cycles, and monetary policy nobuhiro kiyotaki and john moore first version, june 2001 this version, april 2008 abstract this paper presents a model of monetary economy with di. However, the quantitative importance of these constraints in this setup remains an open question. Liquidity, business cycles, and monetary policy kiyotaki. Credit cycles by nobuhiro kiyotaki, john moore ssrn.
The kiyotakimoore model of credit cycles is an economic model developed by nobuhiro kiyotaki and john h. The authors construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. This paper provides evidence of the presence and relevance of the credit chain propagation and amplification mechanism described by kiyotaki and moore 1997 by looking at its implications for the correlation of industries. For individual households and firms, overborrowing leads to bankruptcy and financial ruin. My second and third chapters examine environments with credit constrained entrepreneurs similarly to the original kiyotaki and moore 1997 paper. Credit cycles, nber working papers 5083, national bureau of economic research, inc. Published in volume 9, issue 3, pages 22266 of american economic journal. Kiyotaki nobuhiro and john moore 1997 credit cycles. Credit cycles, journal of political economy, university of chicago press, vol.
We then characterize optimal monetary policy in the ramsey sense. But, when it is used imprudently and in excess, the result can be disaster. Therefore, in equilibrium, lending occurs only if it is collateralized. Readings economic crises economics mit opencourseware. A selection of works closely related to those of kiyotaki and moore 1997 cludes those of albuquerque and hopenhayn 2004, cooley et al. Procyclical movement in balance sheet strength ampli es spending uctuations and thus uctuations in aggregate economic activity. The seminal contribution by kiyotaki and moore 1997 has spurred a vast literature on the i.
Collateral amplification under complete markets european central. These different patterns of investment behavior have been viewed as indicating convex adjustment costs at the. Download this paper open pdf in browser add paper to my library. Wholesale banking and bank runs in macroeconomic modeling of. A theory of capital adjustment costs wang, pengfei. Download pdf 700 kb abstract the kiyotakimoore 1997 framework is a prominent macro model that features credit constraints as an important factor that propagates and magnifies the effects of shocks. In a world of high capital mobility, the threat of speculative attack becomes a central issue of macroeconomicpolicy. Volume 105, number 2 april 1997 selectdeselect all. Amplification and asymmetric effects without collateral. Balance sheets, the transfer problem, and financial crises. Keiko kiyotaki is the author of ottoman land reform in the province of baghdad 4. Overborrowing and systemic externalities in the business cycle.
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