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  3. American Economic Review
  4. March 2007
  5. Credit Traps and Credit Cycles

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Credit Traps and Credit Cycles

  • Kiminori Matsuyama
American Economic Review
vol. 97, no. 1, March 2007
(pp. 503–516)
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Abstract

We develop a simple macroeconomic model of credit market imperfections with heterogeneous investment projects. The projects differ in productivity, the investment requirement, and the severity of agency problems behind the borrowing constraints. A movement in borrower net worth shifts the composition of the credit between projects with different productivity levels, thereby causing endogenous investment-specific technological change. Furthermore, such endogenous technological change in turn affects borrower net worth. These composition effects could give rise to credit traps, credit collapse, leapfrogging, credit cycles, and growth miracles in the dynamics of the aggregate investment and borrower net worth. (JEL E22, E44, O33)

Citation

Matsuyama, Kiminori. 2007. "Credit Traps and Credit Cycles." American Economic Review, 97 (1): 503–516. DOI: 10.1257/aer.97.1.503

JEL Classification

  • E22 Capital; Investment; Capacity
  • E44 Financial Markets and the Macroeconomy