Endogenous credit cycles
By: Chao Gu, Randall Wright
Contributors: Wright, Randall; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17510; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17510.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We study models of credit with limited commitment, which implies endogenous borrowing constraints.  We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics.  There are also stochastic (sunspot) equilibria, in which credit conditions change randomly over time, even though fundamentals are deterministic and stationary.  We show this can occur when the terms of trade are determined by Walrasian pricing or by Nash bargaining.  The results illustrate how it is possible to generate equilibria with credit cycles (crunches, freezes, crises) in theory, and as recently observed in actual economies"--National Bureau of Economic Research web site.
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