Paper #916

Títol:

Endogenous credit cycles

Autor:

Alberto Martin

Data:

Novembre 2004

Resum:

I develop an overlapping-generations framework in which changes in lending standards generate endogenous cycles. In my economy, entrepreneurs who are privately informed about the quality of their projects need to borrow funds. Intermediaries screen entrepreneurs both through the amount of investment undertaken and through the level of entrepreneurial net worth. I show that endogenous regime switches in financial contracts —from pooling to separating and vice-versa— may generate fluctuations even in the absence of exogenous shocks. When the economy is in the pooling (separating) regime, lending standards seem “lax” (“tight”) and investment is high (low). Differently from the existing literature, my model does not require entrepreneurial net worth to be counter cyclycal or inconsequential for determining aggregate investment.

Paraules clau:

Endogenous cycles, financial accelerator, adverse selection, pooling equilibrium, separating equilibrium

Codis JEL:

D82, E32, E44

Àrea de Recerca:

Macroeconomia i Economia Internacional

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