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| Author: | Cordoba, J. C. Ripoll, M. |
| Title: | Collateral constraints in a monetary economy |
| Journal: | Journal of the European Economic Association
2004 : DEC, VOL. 2:6, p. 1172-1205 |
| Index terms: | economic shocks monetary economics monetary policy |
| Freeterms: | collateral constraints |
| Language: | eng |
| Abstract: | The role of collateral constraints is reviewed in transforming small monetary shocks into large persistent output fluctuations. This is done by introducing money in the heterogenous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and money supply is managed via open-market operations. It is found that a monetary shock generates persistent movements in aggregate output, the amplitude of which depends upon whether or not debt contracts are indexed. If only nominal contracts are traded, money shocks can trigger large output fluctuations. In this case a money expansion triggers a boom, whereas money contractions generate recessions. |
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