Cycles of credit expansion and misallocation: The Good, the Bad and the Ugly

• 成果类型: Article
• 署名作者: Dong, Feng; Xu, Zhiwei
• 署名单位: Tsinghua University; Shanghai Jiao Tong University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2020.104994
• 发表日期: 2020
• 关键词: Credit expansion; Volume-composition tradeoff; Financial risk capacity; Financial crisis; Credit cycles

摘要

We offer a tractable dynamic theory where excessive credit creation by the frictional banking sector may lead to over-investment and then endogenous boom-bust cycles. We formalize the idea in a general equilibrium framework with banks and financially constrained heterogeneous firms. In the static model, a moderate credit expansion has a nonmonotonic positive impact on aggregate output, but an excessive credit expansion can trigger an interbank market crisis and result in a discontinuous sharp fall in aggregate output. By extending to a dynamic setting, we show that this mechanism can generate endogenous boom-bust business cycles despite the absence of adverse shocks. (C) 2020 Elsevier Inc. All rights reserved.