Investment Under Capital Inflexibility and Collateral Constraints

2021 ◽  
Author(s):  
Delong Li
Keyword(s):  
Collateral Constraints

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

scholarly journals Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints

2015 ◽  
Vol 7 (1) ◽  
pp. 1-43 ◽  
Author(s):  
Aloísio Araújo ◽  
Susan Schommer ◽  
Michael Woodford
Keyword(s):  
Central Bank ◽  
Financial Constraints ◽  
Aggregate Demand ◽  
Pareto Improvement ◽  
Interest Rate Policy ◽  
Collateral Constraints ◽  
Additional Dimension ◽  
Rate Policy ◽  
Asset Purchases ◽  
The One

We consider the effects of central bank purchases of a risky asset as an additional dimension of policy alongside “conventional” interest rate policy in a general-equilibrium model of asset pricing with endogenous collateral constraints. The effects of asset purchases depend on the way that they affect collateral constraints. We show that under some circumstances, central bank purchases relax financial constraints, increase aggregate demand, and may even achieve a Pareto improvement; but in other cases, they tighten financial constraints, reduce aggregate demand, and lower welfare. The latter case is almost certainly the one that arises if central bank purchases are sufficiently large. (JEL D51, E43, E44, E52, E58)

Collateral Constraints, Wage Rigidity, and Jobless Recoveries

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Tobias Föll
Keyword(s):  
Wage Rigidity ◽  
Jobless Recoveries ◽  
Collateral Constraints ◽  
Collateral Constraint ◽  
The Great Recession ◽  
Matching Frictions ◽  
Search And Matching Frictions ◽  
Business Cycle Model ◽  
The Cost

Abstract The Great Recession has drawn attention to the importance of macro-financial linkages. In this paper I explore the joint role of imperfections in labor and financial markets for the cyclical adjustment of the labor market. I show that jobless recoveries emerge when, upon exiting a recession, firms are faced with deteriorating credit conditions. On the financial side, collateral requirements affect the cost of borrowing for firms. On the employment side, hiring frictions and wage rigidity increase the need for credit, making the binding collateral constraint more relevant. In a general equilibrium business cycle model with search and matching frictions, I illustrate that tightening credit conditions calibrated from data negatively affect employment adjustments during recovery periods. Wage rigidity substantially amplifies this mechanism, generating empirically plausible fluctuations in employment and output.

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